This week we depart from the Course Project to examine trade policy between countries. Given the following scenario you are asked to play the role of an advisor to the highest levels of government in the country of Whizzenbart. Write a 3 to 5 page paper outlining the steps you recommend the government take toward trade with the neighboring countries. Here is the current situation in each country:
Whizzenbart is a country with mountains to the west and rolling hill country sloping down to the ocean in the east. It has some fishing and agriculture, but the largest sector of the economy is a declining heavy industrial manufacturing base of steel and automobiles, which government would like to replace with light industrial manufacturing such as medical devices. Its neighbor to the west is the country of Gizmo which has a workforce of highly educated people employed in the tech industry, along with some fertile dry land farming in the foothills and access to fishing grounds in the northern part of the country. To the Southeast is the country of Evenland, which is flat delta country that has deep topsoil capable of growing most crops, a thriving historical fishing industry, and a new but growing manufacturing sector based on technology.
There are two different markets these countries trade in: agricultural products and manufactured products. The production possibilities for each country and market as follows:
| Wheat | Sardines | |
| Whizzenbart | 10 million bushels | 20 million tons |
| Gizmo | 20 million bushels | 30 million tons |
| Evenland | 10 million bushels | 10 million tons |
| Smart Phones | Heart Rate Monitors | |
| Whizzenbart | 20 million phones | 30 million monitors |
| Gizmo | 10 million phones | 20 million monitors |
| Evenland | 20 million phones | 50 million monitors |
Looking at the data above, answer the following questions in a 3 – 5 page paper:
- As advisor to Whizznebart, discuss whether you should engage in trade with other countries. If so, should the basis of trade be comparative or absolute advantage? Define each of these terms and explain why you should use one approach over the other.
- What should Whizzenbart export and, if you recommend imports, what should they import from Gizmo and Evenland?
- If Gizmo begins to dump Smart Phones below cost into Whizzenbart, what would you suggest the government do and why?
- Is there a situation where a Free Trade Agreement makes sense between Whizzenbart and another country?
- What role would currency exchange rates play in your analysis of possible trade partnerships?
