ECON 1269 – INTERNATIONAL TRADE

Semester 2 – 2021

 

ASSIGNMENT 3

Due date: 17:00pm Tuesday 7 Sep, 2021

 

Ready for Life and Work:

 

• In order to be able to write relevant, accurate and significant reports, the students will need to assess real life situations and make conclusions based on appropriate theoretical frameworks.

 

• To train the researching method, the student will need to find the relevant information and discriminate high value sources from low quality sources.

 

• All this will allow students to gain the skill of producing high quality work requested by the management of firms to make informed and correct decisions on trade questions.

 

Learning outcomes covered in this assignment:

 

2. Examine international trade data to critically discuss economic theorems and apply in diverse contexts.

 

4. Evaluate arguments for and against intervention in the trade process to justify arguments in favour and against globalisation.

 

5. Compare and contrast economic and political conditions in poor and rich countries to critically assess the incentives and consequences of trade liberalisation globally.

 

6. Assess the impact of protectionist policies on the welfare in rich and poor countries to decrypt the political economy of trade reform.

 

 

 

 

Requirements:

 

1. Theory Question:

 

[18 points, wordcount recommendation: approx. 400-500 words]

 

Hint to reduce wordcount: when you present calculations, do not insert spaces between numbers or mathematical signs, as it will be counted as separate words.

 

Theory question: Assume that Vietnam has a demand for laptops of

Q=20.000.000 – 5000 P

 

Assume further that two companies produce identical laptops in Vietnam: Astra-PC and Be-U. Assume that company A and company B have marginal costs of MCA=MCB=2500. Suppose that the marginal costs are the only costs of production and that there are no transport costs. The companies produce and sell their laptops only in Vietnam. Consumers are indifferent among the two brands and perceive both types of laptops to give them an identical utility. Suppose further that there are no other companies that sell laptops in Vietnam.

 

• Calculate the equilibrium price and sales quantity for company A and B if they follow a Cournot model. Calculate the profit of company A and company B. Calculate the consumer surplus, companies profit and the welfare loss compared to a free market situation. (5 points)

 

 

• Assume now that a Japanese laptop producing company, J-Laps, is allowed to sell as many laptops in Vietnam as they like. Assume that the laptops of company J are identical to the ones produced by company A and B. Assume that company J has marginal costs of MCJ=1900 which is their only cost of production. Assume further that there are no transport costs. Furthermore, assume that Vietnamese customs applies a 15.8% add valorem tariff on the sales price of laptops sold by company J in Vietnam.

 

Calculate the new sales price, new sales quantity, new consumer surplus and the profit of the three firms. Round up to the nearest money unit. (5 points)

 

• Compare your results from question a) and b). Discuss if the changes in price, quantity, welfare and profits is what would be expected in the case of opening up to trade. (3 points)

 

• Assume now that Vietnamese customs decides to remove the tariff. How does this change the results you had in b) (price, quantity, consumer surplus, profit of firms)? Who are the greatest winners and greatest losers in terms of welfare and/or profits from this reduction of protectionism? (5 points)

 

 

2. [18 points, wordcount recommendation: approx. 700-800 words]

 

• Collect international trade data of Vietnam for the years previous to the Covid-19 pandemic and for the years during the Covid-19 pandemic. You will need to decide the time frame/years by yourself. You need to present the following data separately for the pre-Covid and during Covid time periods:

 

• the main 5 export products and main 5 import products

 

• the main 5 export partners and 5 main import partners

 

• Vietnamese overall trade balance

 

• real effective exchange rate for Vietnam

 

• income distribution and data on poverty for Vietnam

 

(5 points)

 

• Assess and present the main differences between the two time periods that you identified in a). Based on the data collected in a), your assessment in this current section and external sources: how has the pandemic affected Vietnam’s trade pattern? (4 points)

 

• Identify one trade model studied in our course that can explain some of the changes that you identified in b). Explain the model very briefly and explain how it helps to understand the dynamics that you identified. Use the data collected or additional data and/or additional sources to back up your claims. (5 points)

 

• Which industries that you identified in a) have emerged strengthened due to the pandemic and which have been weakened during the pandemic? (4 points)

 

 

3. [14 points, wordcount recommendation: approx. 400-500 words]

 

• Choose one ASEAN country. The country you chose cannot be Vietnam. Write a short article on whether international trade has reduced the income disparity within this country. Use data for the past 20 years to back up your claim. Use the Gini coefficient to present income disparity. In your analysis, very briefly address to what degree other economic variables might have contributed to the income disparity reduction, besides international trade. Connect your findings to some of the model and/or theorems learned in our course. (14 points).