BUSINESS AND TRADE
NORMA DY LOPEZ-MARIANO, Ph.D., FRIEDr
COPYRIGHT
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LESSON 1/CHAPTER 1
Chapter 1
Evolution of International Trade
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LESSON 1/CHAPTER 1
Introduction
World Trade Organization (WTO) - the only global international
organization dealing with the rules of trade between nations
Roles of WTO:
1. It operates a global system of trade rules.
2. It acts as a forum for negotiating trade agreements.
3. It settles trade disputes between its members.
4. It supports the needs of developing countries.
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LESSON 1/CHAPTER 1
Lesson 1.1
Evolution of International Trade:
A Glimpse
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LESSON 1.1/CHAPTER 1
Lesson Objectives
At the end of the lesson, the students should be able to:
1.
2.
3.
4.
5.
explain how the Standard Theory of International Trade developed;
discuss the meaning of trade surplus;
elaborate on industrial capitalism;
contrast free trade and mercantilism;
distinguish between absolute advantage and comparative
advantage;
6. differentiate marginal cost from opportunity cost; and
7. take a stand on whether international business and trade is
beneficial or not.
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LESSON 1.1/CHAPTER 1
Lesson Key Concepts and Examples
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LESSON 1.1/CHAPTER 1
•
The main historical theories are called classical and are from the
perspective of a country, or country-based.
•
The theory is a classical, country-based international trade
theory that states that a country’s wealth is determined by its
holdings of gold and silver.
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LESSON 1.1/CHAPTER 1
•
•
Division of labor is the separation of a work process into a number
of tasks, with each task performed by a separate person or group of
persons to boost productivity and efficiency and enhance
specialization.
Trade surplus is the amount by which the value of a country’s
exports exceeds the cost of its imports.
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LESSON 1.1/CHAPTER 1
• In a free trade system, individuals benefit from a greater choice of
affordable goods, while mercantilism restricts imports and reduces
the choices available to consumers.
• Absolute advantage is the country’s inherent ability to produce
specific goods efficiently and effectively at a relatively lower
marginal cost.
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LESSON 1.1/CHAPTER 1
•
•
Comparative advantage refers to the country’s capability to produce
the specific good at a lower marginal cost and opportunity cost.
Marginal cost is the cost incurred on producing an additional unit of
a product. Opportunity cost means the value you will get from an
alternative that you did not choose.
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LESSON 1.1/CHAPTER 1
Absolute advantage is the ability of an economy to produce a
certain good more efficiently than another economy can.
Let's look at an example.
• Consider two countries that only need labor to make coffee
bags, Country A and Country B. Country A has a workforce of
50 and produces 50 bags of coffee every day. On the other
hand, Country B has a workforce of 50, yet it produces 40
bags of coffee every day.
• The example above shows that Country A has an absolute
advantage over Country B in coffee production. This is
because even though they both have the same number of
workers; they produce more bags of coffee within the same
duration when compared to Country B. This describes the
economics of absolute advantage.
•
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•
•
•
Comparative advantage is the ability of an economy to produce a
given product at a lower opportunity cost than other economies would
incur in producing the same product
Let's consider two countries, Country A and Country B. Both countries
can produce coffee and rice and sell both at the same price. When
country A produces 50 bags of coffee, it forgoes 30 bags of rice. On the
other hand, when Country B produces 50 bags of coffee, it forgoes 50
bags of rice.
From the example above, we can see that Country A has a comparative
advantage in coffee production. This is because, for every 50 bags of
coffee produced, Country A gives up 30 bags of rice, which is a lower
opportunity cost than the 50 bags of rice Country B has to give up.
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Absolute Advantage vs. Comparative Advantage
Calculation
•
The calculation of absolute advantage vs. comparative advantage is
different, with the comparative advantage being slightly more
complex. For absolute advantage, we simply need to compare the
quantities of output, and the country with the larger quantity wins
the absolute advantage. However, comparative advantage is
calculated by finding the opportunity cost for each country, and the
country with the lower opportunity cost wins the comparative
advantage.
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Comparative Advantage and Absolute Advantage
Analysis
•
•
•
Country A
Country B
Coffee 5,000
500
Rice
1,000
4,000
First, we can see that Country A has the absolute advantage in
coffee production since it can produce up to 5,000 bags against
Country B's 500 bags. On the other hand, Country B has the
absolute advantage in rice production since it can produce up to
4,000 bags against Country A's 1,000 bags.
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•
•
•
•
•
•
If Country A only produces rice, then it forgoes the ability to
produce 5,000 bags of coffee.
The calculation is as follows: 5,000 / 1,000 = 5 coffee/rice
On the other hand, if Country B produces only rice, then it will forgo
the ability to produce 500 bags of coffee.
The calculation is as follows: 500/4,000 = 0.125 coffee/rice
The analysis above shows that Country B has a comparative
advantage in the production of rice since it has a lower opportunity
cost of 0.125 when compared to the opportunity cost of Country A,
which is 5.
All in all, we can see that country A has the absolute advantage and
comparative advantage in producing coffee, whereas Country B has
the absolute advantage and comparative advantage in producing
rice.
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Comparative Advantage
•
•
•
•
•
•
Opportunity Cost of Good A = Qty of Good B/ Qty of Good A
If Country A only produces coffee, then it forgoes the ability to
produce 1,000 bags of rice.
The calculation is as follows: 1,000 / 5,000 = 0.2 rice/coffee
On the other hand, if Country B produces only coffee, then it will
forgo the ability to produce 4,000 bags of rice.
The calculation is as follows: 4,000/500 = 8 rice/coffee
From the analysis above, Country A has a comparative advantage in
the production of coffee since it has a lower opportunity cost of 0.2
when compared to the opportunity cost of Country B, which is 8.
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Lesson Activities and/or
Practice Exercises
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LESSON 1.1/CHAPTER 1
Instruction: Answer the following comprehensively.
1.
2.
3.
4.
5.
Explain how the Standard Theory of International Trade developed.
Discuss the meaning of trade surplus.
Elaborate on industrial capitalism.
Contrast free trade and mercantilism.
Distinguish between absolute advantage and comparative
advantage.
6. Differentiate marginal cost from opportunity cost.
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LESSON 1.1/CHAPTER 1
Connections and Applications
In at least two paragraphs, write your reflection on the following topic:
Industrial Business and Trade: Beneficial or Not?
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LESSON 1.1/CHAPTER 1
Lesson 1.2
Barter
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LESSON 1.2/CHAPTER 1
Lesson Objectives
At the end of the lesson, the students should be able to:
1.
2.
3.
4.
explain the meaning of barter;
discuss the development of barter;
elaborate on the advantages of barter; and
elucidate the disadvantages of barter.
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LESSON 1.2/CHAPTER 1
Lesson Key Concepts and Examples
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LESSON 1.2/CHAPTER 1
•
Bartering involves a direct trade or exchange of goods and services.
•
Advantage - It does not involve money and is very simple.
•
•
However, it is difficult to find people who need what other people
have, and there is no standard measure of value.
Even today, there are swap markets, online auctions, and numerous
websites that offer online bartering arrangements.
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LESSON 1.2/CHAPTER 1
•
•
The history of bartering can be traced back to 6000 BC, when the
barter system was introduced by the tribes of Mesopotamia, then
adopted by the Phoenicians, and improved by the Babylonians.
Salt was so valuable at that time that the salary of Roman soldiers
was paid in salt.
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LESSON 1.2/CHAPTER 1
Lesson Activities and/or
Practice Exercises
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LESSON 1.2/CHAPTER 1
Instruction: Answer the following comprehensively.
1. Explain the meaning of barter.
2. Elaborate on the advantages of barter.
3. Elucidate the disadvantages of barter.
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LESSON 1.2/CHAPTER 1
Connections and Applications
In at least two paragraphs, write your reflection on the following topic:
Barter
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LESSON 1.2/CHAPTER 1
Lesson 1.3
Origin of Money
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LESSON 1.3/CHAPTER 1
Lesson Objectives
At the end of the lesson, the students should be able to:
1.
2.
3.
4.
trace the origin of money;
give examples of items used as money;
explain the meaning of mint and minting; and
discuss the roles of China, Lydia, Canada, and France in the
development of money.
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LESSON 1.3/CHAPTER 1
Lesson Key Concepts and Examples
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LESSON 1.3/CHAPTER 1
•
•
The first recognizable metal coins appeared in China in 1000 BC.
Sometime around 770 BC, miniature replicas of tools and weapons
cast in bronze were used by the Chinese as a medium of exchange.
The small bronze celts and bronze rings played a monetary role.
•
Objects in the shape of circles became some of the first coins.
•
Around 700 BC, the Chinese moved from coins to paper money.
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LESSON 1.3/CHAPTER 1
•
•
•
•
The first mint, an industrial facility to manufacture coins, was
established in Lydia (now western Turkey).
Minting is the process of making a coin by stamping metal.
In 600 BC, around the time China started using paper money, Lydia’s
King Alyattes minted the first official currency.
King Croesus installed the first bimetallic monetary system.
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LESSON 1.3/CHAPTER 1
•
•
The first regular system of exchange in Canada occurred in
Tadoussac, where French traders bartered with Montagnais people.
The first colonial settlement in Quebec was established by Samuel
de Champlain (1608). The beaver pelt was the universally accepted
medium of exchange in the colony. As economic and financial needs
became more complex, coins from France came to be widely used.
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LESSON 1.3/CHAPTER 1
•
Silver and copper coins designed especially for the colonies were
minted in 1670.
•
During the mid-1600s, Spanish dollars (piastres) represented the
first distinctive Canadian coins.
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LESSON 1.3/CHAPTER 1
•
The livre (French for “pound’) was the currency of the Kingdom of
France and its predecessor state of West Francia from 1781 to
1794.
•
In 1685, Jacques de Meulles, Intendant of Justice, Police, and
Finance, came up with the temporary issuance of paper money
printed on playing cards. Card money served as money in Canada,
just as coin did in France.
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LESSON 1.3/CHAPTER 1
•
•
•
Copper coins were introduced in 1722, but they were not well
received by merchants.
Bills of exchange drawn on the Treasury were used for payments of
expenses in Canada.
The advent of paper money led to an increase in international trade.
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LESSON 1.3/CHAPTER 1
Lesson Activities and/or
Practice Exercises
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LESSON 1.3/CHAPTER 1
Instruction: Answer the following comprehensively.
1. Trace the origin of money.
2. Give examples of items used as money.
3. Explain the meaning of mint and minting.
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LESSON 1.3/CHAPTER 1
Connections and Applications
In at least two paragraphs, write your reflection on the following topic:
The Roles of China, Lydia, Canada, and France
in the Development of Money
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LESSON 1.3/CHAPTER 1
Lesson 1.4
History of the Philippine
Currency
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LESSON 1.4/CHAPTER 1
Lesson Objectives
At the end of the lesson, the students should be able to:
1. discuss the history of the Philippine currency during the pre-Hispanic era;
2. explain the history of the Philippine currency during the Spanish era;
3. elaborate on the history of the Philippine currency during the
revolutionary period;
4. elucidate the history of the Philippine currency during the American
period;
5. discuss the history of the Philippine currency during the Japanese
occupation; and
6. explain the history of the Philippine currency during the Philippine
Republic.
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LESSON 1.4/CHAPTER 1
Lesson Key Concepts and Examples
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LESSON 1.4/CHAPTER 1
•
•
Barter was the means of trade long before the Spaniards came to
the Philippines.
Barter rings, made of gold called piloncitos, were the first local form
of coinage. These had a flat base that bore an embossed inscription
of the letters “MA” or “M,” believed to be the name by which the
Philippines was known to Chinese traders.
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LESSON 1.4/CHAPTER 1
•
•
The cobs or macuquinas (silver coins) were the earliest coins brought
in by the galleons from Mexico and other Spanish colonies.
The barrilla, a crude bronze or copper coin worth about one centavo,
was the first coin struck in the country as ordered by the Royalty of
Spain. The Filipino term “barya,” referring to small change, had its
origin in barrilla.
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LESSON 1.4/CHAPTER 1
•
Gold coins with the portrait of Queen Isabela were minted in
Manila.
•
The pesos fuertes, issued by the country’s first bank, the El Banco
Español Filipino de Isabel II, were the first paper money circulated in
the country.
•
The Philippine Republic of 1898 issued its own coins and paper
currency, backed by the country’s natural resources.
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LESSON 1.4/CHAPTER 1
•
•
With the coming of the Americans in 1898, the Philippines became
one of the most prosperous countries in East Asia. The Americans
instituted the gold standard.
The gold standard is a monetary system where a country’s paper
money has a value directly linked to gold; countries agreed to
convert paper money into a fixed amount of gold per unit of
currency.
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LESSON 1.4/CHAPTER 1
•
•
The US Congress approved the Coinage Act for the Philippines in
1903. The coins issued under the system bore the designs of Filipino
engraver and artist, Melecio Figueroa.
El Banco Español Filipino was renamed Bank of the Philippine
Islands in 1912. Beginning in May 1918, treasury certificates
replaced the silver certificates series, and a one-peso note was
added.
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LESSON 1.4/CHAPTER 1
•
Two kinds of notes circulated in the country during the outbreak of
World War II—war notes in high denominations issued by the
Japanese Occupation Forces, dubbed as “Mickey Mouse” money,
and guerrilla notes or resistance currencies in low denominations
issued by different provinces and municipalities.
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LESSON 1.4/CHAPTER 1
•
•
•
With the establishment of the Central Bank of the Philippines in
1949, the first currencies issued were the English series notes and
the coins minted at the US Bureau of Mint.
The “Filipinization” of the republic coins and notes began in the late
60s.
The Ang Bagong Lipunan (ABL) series notes were circulated starting
in 1978.
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LESSON 1.4/CHAPTER 1
•
•
•
In 1983, the Flora and Fauna coin series was initially issued.
The New Design Series of banknotes issued in 1985 replaced the
ABL series.
Ten years later, a new set of coins and notes was issued, carrying the
logo of the new Bangko Sentral ng Pilipinas.
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LESSON 1.4/CHAPTER 1
Lesson Activities and/or
Practice Exercises
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LESSON 1.4/CHAPTER 1
Instruction: Answer the following comprehensively.
1. Discuss the history of the Philippine currency during the pre-Hispanic
era.
2. Explain the history of the Philippine currency during the Spanish era.
3. Elaborate on the history of the Philippine currency during the
revolutionary period.
4. Elucidate the history of the Philippine currency during the American
period.
5. Discuss the history of the Philippine currency during the Japanese
occupation.
6. Explain the history of the Philippine currency during the Philippine
Republic.
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LESSON 1.4/CHAPTER 1
Connections and Applications
In at least two paragraphs, write your reflection on the following topic:
The History of Philippine Currency
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LESSON 1.4/CHAPTER 1
Lesson 1.5
Mobile Payments and Internet
Payments
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LESSON 1.5/CHAPTER 1
Lesson Objectives
At the end of the lesson, the students should be able to:
1.
2.
3.
4.
5.
explain the meaning of mobile payments;
discuss what point of sale is;
elaborate on the different methods of mobile or internet payments;
elucidate the meaning of mobile wallets; and
discuss “autopay” and “direct carrier billing.”
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LESSON 1.5/CHAPTER 1
Lesson Key Concepts and Examples
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LESSON 1.5/CHAPTER 1
•
•
Mobile payments are money rendered for a product or service
through a portable electronic device.
Near field communication (NFC) payments are the technology that
allows contactless payments using close-proximity radio frequency
identification.
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LESSON 1.5/CHAPTER 1
•
•
Sound wave-based (SWB) or sound signal-based (SSB) mobile
payments or pay-by-sound use an advanced, ultra-low power
wireless transmission technology.
Magnetic secure transmission (MST) makes use of a magnetic signal
to process payment using a secure tokenization system.
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LESSON 1.5/CHAPTER 1
•
•
•
Quick response (QR) codes are the trademark of a type of matrix
barcode (type 2D barcode) readable by smartphones.
Short message/messaging service (SMS), or premium SMS
payments, pay for products or services via text message.
Direct carrier billing (DCB) is where the payment will be added to
your phone bill or prepaid SIM card.
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LESSON 1.5/CHAPTER 1
•
•
•
Internet payments can be done on desktops, laptops, or even
phones (as in mobile payments).
Wireless application protocol (WAP) payments used to be the most
common facility on smartphones, through a more limited-capacity
WAP browser or app.
“Autopay” is scheduled to be automatically paid on a certain date.
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LESSON 1.5/CHAPTER 1
•
•
Payment links or pay by link is most commonly referring to a button
or link sent to process a transaction for a specified merchant.
Neobank is an umbrella term for the new generation of cuttingedge, fully digital banking services classified as a type of financial
technology (fintech) solution.
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LESSON 1.5/CHAPTER 1
Lesson Activities and/or
Practice Exercises
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LESSON 1.5/CHAPTER 1
Instruction: Answer the following comprehensively.
1.
2.
3.
4.
5.
Explain the meaning of mobile payments.
Discuss what point of sale is.
Elaborate on the different methods of mobile or internet payments.
Elucidate the meaning of mobile wallets.
Discuss “autopay” and “direct carrier billing.”
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LESSON 1.5/CHAPTER 1
Connections and Applications
In at least two paragraphs, write your reflection on the following topic:
Mobile Payments and Internet Payments
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LESSON 1.5/CHAPTER 1
Lesson 1.6
Virtual Currency
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LESSON 1.6/CHAPTER 1
Lesson Objectives
At the end of the lesson, the students should be able to:
1.
2.
3.
4.
5.
explain the meaning of virtual currency;
differentiate fiat money and e-money;
discuss what a virtual currency exchange is;
elaborate on blockchain technology;
distinguish between centralized and decentralized relevant to
cryptocurrencies; and
6. elucidate the top six 5-star cryptocurrencies.
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LESSON 1.6/CHAPTER 1
Lesson Key Concepts and Examples
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LESSON 1.6/CHAPTER 1
•
Cryptocurrency, virtual or digital currency, “digital gold,” or
“altcoins” are any type of digital unit that is used as a medium of
exchange or a form of digitally stored value generated by agreement
within the community of virtual currency users.
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LESSON 1.6/CHAPTER 1
•
•
Fiat currency or fiat money or cash is the real currency, coins, and
paper money (bills) issued and printed by the central bank of a
country.
E-money is a digital representation of fiat currency stored in digital
wallets or e-wallets.
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LESSON 1.6/CHAPTER 1
•
•
Virtual currency, which is stored digitally, would still need to be
converted first to Philippine peso, then transferred to a destination
wallet or withdrawn as cash through different mediums that are
accepted in the country done through a virtual currency exchange.
Cryptocurrencies use electronic coins as their form of exchange,
which is nothing more than slots in the blockchain.
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LESSON 1.6/CHAPTER 1
•
•
Cryptocurrencies use cryptography, the process of protecting
information by using codes, for security.
The more users a coin has, the more useful it becomes, and the
higher its price goes. But when a coin falls out of favor, there is
nothing to stop it from going to zero.
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LESSON 1.6/CHAPTER 1
Lesson Activities and/or
Practice Exercises
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LESSON 1.6/CHAPTER 1
Instruction: Answer the following comprehensively.
1.
2.
3.
4.
5.
Explain the meaning of virtual currency.
Differentiate fiat money from e-money.
Discuss what a virtual currency exchange is.
Elaborate on blockchain technology.
Distinguish between centralized and decentralized relevant to
cryptocurrencies.
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LESSON 1.6/CHAPTER 1
Connections and Applications
In at least two paragraphs, write your reflection on the following topic:
Virtual Currency
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LESSON 1.6/CHAPTER 1
Concluding Slide
International trade has a rich history, starting with the barter system
being replaced by Mercantilism in the 16th and 17th centuries. The
18th century saw a shift towards liberalism.
International trade not only results in increased efficiency but also
allows countries to participate in a global economy, encouraging the
opportunity for foreign direct investment (FDI). Economies can grow
more efficiently and attract competitive economic participants more
easily.
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LESSON 1/CHAPTER 1
Reference
Lopez-Mariano, Norma. 2023. International Business and Trade.
Manila: Rex Book Store, Inc.
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LESSON 1/CHAPTER 1