Module 2 - Foreign Trade

Economics 9 4th Quarter
MODULE
2 International Trade
International trade is the exchange of products and services between the Philippine and other countries. International trade
consists of importing and exporting local goods sold in other countries and goods from other countries sold in the local market.
Why is there a need to engage in international trade and what are the possible repercussions of this in our national economy?
1. If the capacity of a country to produce is limited, there is a need to engage in international trade to meet the demands of its
citizens. The increase in supply of products may lead to a decrease in price if supply is greater than demand . If the value of
importing product from abroad is less than the value of the local product then price will go down which will inadvertently affect the
sale of locally made products. The competition in the market will be against locally made and imported products. The competition
will lead to the improvement of quality of products and the lowering of price. The consumers will benefit from this competition. On
the other hand, if the consumers will prefer imported products to the locally made ones then the local industry will lose profit and
eventually shut down.
2. There are limited kinds of a product in one country as compared to other countries. A country may only use cotton to make fabric
while other countries use silk, polyester, and pineapple fiber. The entry of different fabrics in the country will expand the business
of the clothing industry for the consumers will have a variety of choices that encourage them to buy. It may also lead to other
businesses where the different fabrics be used to produce items other than clothing
3. The countries importing and exporting products benefit from international trade for investors open new businesses that employs
more workers and the government is able to collect taxes. The dollars coming in from exported products also beef up the country’s
dollar reserves.
How Will a Country Benefit from International Trade?
In international trade, when should a country export and import? If the local product is considerably low priced compared to
other country’s product, the local product can be exported to other countries for it can compete in terms of price.
Look at the chart below with shrimp as the product. If the price of shrimp in country A is ₱350/kilo while in country B its
₱600/kilo. Country A can export shrimp to country B because price of shrimp in A is lower than the prevailing price in country B.
The consumers in country B will be enticed to buy shrimps from country A. If this is the case, then the investors in country A will
earn additional profits because they can sell the shrimps for ₱500/kilo in country B or in the international market, earning them an
additional ₱150/kilo.
Although this situation is favorable for investors, it is contrary for the consumers in country A for the price of shrimp will
increase. The decrease in demand of shrimp from country A due to the increase in price is compensated with the demand from
country B.
Country A Country B
Price of Shrimp Demand for Shrimp Price of Shrimp Demand for Shrimp
₱350 High ₱600 Low
Price of Shrimp from Country Demand of Shrimp in Country Price of Shrimp in Country B Demand of country B for
A if sold in Country B A if price increase in local shrimp from Country A
market
₱500 low ₱600 high
Government Relationship with International Trade Organizations
The government coordinates with other countries for Filipino investors and agencies of the government may engage in free
trade with them. According to the following data, the country Japan has the most Filipino products exported to their country while
China has the most products imported into the country.
Economic Policies That Support International Trade
1. Tariff. Tariff is tax imposed on imported goods. It increases the price of the imported products so that its price is higher
than the local and international market.
2. Quota. Quota limits the quantity of products coming in from countries. This is to ensure that the local market is still
dominated by locally made products and not by products from other countries.
3. Subsidy. It is a support coming from the government in terms of discount or materials given to local industries or sectors
that need help in lowering their production cost. This is to enable the local industries or sectors to compete in terms of price
in the international market.
Advantages and Disadvantages of International Trade
1. Consumers having varieties of products to choose from that cater to their needs and preferences;
2. Countries can consume more than they can produce, consumption gains, because they can buy the additional supplies from
other countries;
3. Having a heightened competition between local and imported products results in high quality of products at reasonable
prices;
4. Lowering the cost of production because of high demand of products encourage the producer to produce at a larger scale
thus, minimizing the cost per product produced (economies of scale), than producing little by little in cottage industries; and
5. Improvement and advancement in using technology for production.
Conversely, international trade also brings about harmful effects to the economy like:
1. Weakening of the local industries due to the tight competition brought about by the foreign industries;
2. Increase in the colonial mentality of local consumers;
3. The developing countries supplying raw materials (low value-added) and skilled labor (brain-drain) to other countries; and
4. Developed countries, with modern technology and capacity to produce at a higher rate, dictate prices in the international
market which the developing countries follow (price takers).
1. Association of Southeast Asian Nations (ASEAN)

2. European Union (EU)
3. Asia-Pacific Economic Council (APEC)
FT1. Link the following words based on what you learned in this module. Construct a sentence using all words in each number.
1. specialization, efficient, absolute advantage
__________________________________________________________________________________________________________
2. brain drain, price takers, tight competition
__________________________________________________________________________________________________________
3. tariff, quota, subsidy
__________________________________________________________________________________________________________
4. developed countries, consumers, economies of sale
__________________________________________________________________________________________________________
5. local market, imported, investors
__________________________________________________________________________________________________________
FT2. Choose the letter that corresponds to your answer.
1. Which of the following sentences is true about international trade.
a. International trade is the exchange of trade policies with other countries.
b. International trade is the exchange of products and services with other countries.
c. International trade is countries setting international trade policies.
d. International trade is the protection of local industries from foreign products.
2. Which of the following is NOT a reason for international trade?
a. A country has production limitations.
b. The value of the product of a country compared to the value of another country’s product is comparably lower
c. The country has many popular products.
d. Investors in a country is considerably wealthy than the other country.
3. When does the government impose quota to foreign products?
a. When government needs to increase tax.
b. When the tariff is low in order to control the entry of foreign products in the country.
c. When foreign products are in demand to the point of dominating the local products in the market.
d. When the price is high the government imposes quota in the ceiling price.
4. What term is used when the government gives discount or materials to local industries or sectors to help minimize production
cost and be able to compete with price in the international market?
a. Quota b. specialization c. subsidy d. tariff
5. In what organization does the Philippine have a major trade with?
a. APEC b. ASEAN c. EU d. UN
FT3. Complete the chart below by strengths and weaknesses of the Philippines in relation to international trade.
Strength Weakness
FT4. Writing Activity

- Describe the effects of international trade to the lives of Filipinos. How can we prevent the imported products taking over the
market from the locally produced products?
- The top export good of the Philippines is electronic parts while its top import good is electronic products. What does this imply?
Write a short essay about it.

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Economics 9 4th Quarter

1. Association of Southeast Asian Nations (ASEAN)

FT4. Writing Activity

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