ECON 475V6 Assignment 1H

Answer all five questions in one file. Each question is worth 20 marks. Keep your answer concise. Use figures to illustrate your point wherever possible. Show all your work and attach your graphs when submitting your assignment for grading and feedback.

1.  Define and explain the difference between absolute advantage and comparative advantage. What is the significance of each in international trade processes?

2.  Suppose that, from an initial consumer equilibrium position, the price of good X falls while the price of good Y remains the same. Using indifference curve analysis, explain how and why the consumer’s relative consumption of the two goods will change.

3.  Suppose that the price of labour rises. Explain how producers would respond, using the isocost/isoquant framework. What would happen to the capital/labour ratio?

4.  What do you regard as the main weaknesses of the Ricardian/Classical model as an explanation of trade patterns? Why do you regard them as weaknesses?

5.  In light of the Ricardian model, how might you evaluate the claim by developing countries that they are at a disadvantage in trade with powerful industrialized nations?

Assessment instructions for centreLearners should produce five technical reports completed under open book
conditions. Each report should consist primarily of data presented in table or chart
form with some explanatory text. This text for each report should not exceed 200
words. The reports should analyse and evaluate the international physical distribution
function of an organisation for delivery and cost of the delivery of goods. They should be
based on the following case study extensions.
The reports should demonstrate the learner’s knowledge and/or skills in relation to:
¨ international transport modes
¨ consignment delivery terms
¨ consolidation and groupage arrangements ¨
the least total cost concept
¨ the integration of international distribution procedures and documentation
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Assessment Support Pack/H316 35/ASP001 V1
SCQF level 8 International Physical Distribution April 2013
Assessment instructions for learners
Read the extensions to the case study below and complete the assessment tasks
which follow.
Technical report 1 — International transport modes
Case study extension
Angus Glen Water asked its R&D department to research routes, modes of transport,
transit times and costs for the carriage of the empty new glass bottles from the
factory in Milan, Italy to their bottling site in Kirriemure Scotland.
They were asked to give only shipping costs with no on-costs. Costs should also be
calculated for individual modes based on only those parts of the route undertaken by
that mode. They have also been asked to analyse one route for multi-mode transport.
The department has decided to provide this information in table form along with
comments on the advantages and disadvantages of using each mode of transport.
The bottles will be loaded on 1,200 x 1,800 pallets. Rail and sea transport will be by
40ft container carrying 25 pallets. Direct road will be by curtain side rigid lorry
carrying 20 pallets and air will be by airplane cargo hold, at a maximum of five
pallets.
You should complete a table similar to the one below along with a brief explanatory
text.
Notes
1 Total cost should be based on 1 x 40ft container load, 1 rigid curtain side lorry
load or 1 airplane cargo hold depending on the mode.
2 The road element of multi-mode is by flat-bed lorry carrying 1x40ft container.
3 Multi-mode transit time should be the total of transit times for all included modes.
Table — International transport modes
Mode Total Cost Transit Mode Mode
mode per time advantages disadvantages
cost 1 pallet
Sea
Air
Rail
Direct
road
Multi- 2 3
mode
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SCQF level 8 International Physical Distribution
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April 2013
The basic data available is:
Sea Genoa Calata Container Port to Felixstowe Container Port
3,258 km — £620 per container — Transit time 7 days —
Shipped every 4 weeks
Air Milan Malpensa Airport — Aberdeen Airport
2,049 km — £1,265 per 5 pallets — Transit time 4 hours —
Shipped 4 times a day
Rail Milan Smistamento Container Terminal – Coatbridge Railport
1,957 km — £1,275 per container — Transit time 2 days —
Shipped 3 times a week
Direct road Milan Glass Works — Kirriemuir Bottling Plant
2,171 km — £1,350 per Curtainside Rigid Lorry —
Transit time 3 days — Shipped daily
Multi-mode — Road Milan Glass Works to Genoa Calata Container Port
119 km — £125 per flat bed container lorry — Transit time 6
hours — Shipped daily
Sea Genoa Calata Container Port to Felixstowe Container Port
4,258 km — £620 per container — Transit time 7 days —
Shipped every 4 weeks
Rail Felixstowe Container Port to Coatbridge Railport
664 km — £295 per container — Transit time 5 hours —
Shipped daily
Road Coatbridge Railport to Kirriemuir Bottling Plant
151 km — £145 per flat bed container lorry — Transit time 7
hours — Shipped daily
Note — This data is for this assignment purposes only and should not be taken as
accurate.
Scottish Qualifications Authority 15
Assessment Support Pack/H316 35/ASP001 V1
SCQF level 8 International Physical Distribution April 2013
Technical report 2 — Consignment delivery terms
Case study extension
Angus Glen Water has been informed by the bottle suppliers in Milan Italy that they
would wish to deliver the empty new glass bottle consignments CPT Genoa. The
Organisation has also been informed by Ecosse Hotels that they would wish the
Organisation to consign the bottled water DDP at Montreal. The Organisation’s
management has asked its R&D department to give them a technical report which
explains what these and other Incoterms mean and what the implications are in
relation to the allocations of costs between the buyer and seller
You should research Incoterms and their implications for both the buyer and seller
and complete two tables similar to this below along with brief explanatory notes
Table — Incoterms and their definition
(The first row has been completed as an example)
Initial Incoterm Description
EXW Ex Works The buyer is responsible for uploading. This term
(named place of places the maximum obligation on the buyer and
delivery) minimum obligations on the seller. The Ex Works
term is often used when making an initial quotation
for the sale of goods without any costs included.
EXW means that a seller has the goods ready for
collection at his premises on the date agreed upon.
The buyer pays all transportation costs and also
bears the risks for bringing the goods to their final
destination. The seller doesn’t load the goods on
collecting vehicles and doesn’t clear them for export.
FCA
CPT
CIP
DAT
DAP
DDP
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Table — Allocations of cost buyer/seller according to Incoterms 2010
(The first and second rows have been completed as examples)
Incoterm Export- Carriage Unloading Loading Carriage Unloading Loading Carriage
to Insurance Import Import
2010 Customs to port of truck in charges (Sea Freight/ charges on truck place of
customs taxes
declaration of port of in port Air Freight) in port of in port of
destination clearance
export export of to port of import import
export import
EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
Buyer Buyer
FCA Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer
Buyer Buyer
CPT
CIP
DAT
DAP
DDP
Note — Both tables are based on the 8th published set of pre-defined Incoterms 2010.
Scottish Qualifications Authority 17
Assessment Support Pack/H316 35/ASP001 V1
SCQF level 8 International Physical Distribution April
2013
Technical report 3 — Consolidation and groupage arrangements
Case study extension
Swiftpallet, a European wide pallet transporter has approached Angus Glen Water to
offer them the opportunity to use their pallet groupage and consolidation service to
transport the new empty glass bottles, palletised from the Milan glass works to the
Kirriemuir site on a door to door basis. They give a transit time of between 3 and 5 days
with a pick up on the day following the order. They are offering a flat price per pallet of
£108 excluding insurances, etc.
The Organisation has agreed that the most economical means for transporting the
bottles will be multi-modal but they have asked the newly appointed Physical
Distribution Manager to produce a technical report advising in what circumstances
Swiftpallet’s offer could be useful and at what level of pallet load it would be more
cost effective than using the similar direct road option.
You should complete a similar chart to that below by defining both groupage and
consolidation, indicate in what circumstances they could be used and at what level of
pallet load this would be cost effective over the direct road option. You should
provide a brief note explaining how you reached the final cost effectiveness figure.
Note — You should use to the information given and figures you produced in the
Technical report 1.
Chart — Consolidation and groupage arrangements
Definition of
Groupage
Consolidation
Circumstances
when they
could be used
Cost effective
pallet load
level
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Assessment Support Pack/H316 35/ASP001 V1
SCQF level 8 International Physical Distribution April 2013
Technical report 4 — Least total cost concept
Case study extension
Angus Glen Water has asked the Physical Distribution Manager to look carefully at
the delivery side, the transport of filled bottles to Ecosse Hotel’s warehouse in
Bouchville, Montreal, Canada. The decision has been made to use sea as the only
alternative air is not an option. Ecosse Hotels will arrange, but not fund, transit from
Port de Montreal to their warehouse. There is some debate about whether the
company should use Tilbury or Southampton as the port of exit from the UK and
which mode should be used to transport the containers holding the filled bottles to
the exit port.
Cost is crucial if the project is to provide the level of profit the Organisation expects.
The Physical Distribution Manager has decided to use the least case cost model to
identify which route and mode they will recommend.
You should produce a brief report of not more than 200 words which explains the
least total cost concept then, using the data from the table below, then complete a
recommendation chart similar to the one below.
Table — Transit costs Kirriemuir to Montreal
Item Route from Route to and Cost per Transit extras
average 40 ft
transit time container
Road by rigid Kirriemuir Coatbridge £145 On Load Kirriemuir £0
container flat Bottling Plant Railport (Bottling Company lift
bed lorry 1 day truck and staff)
Off Load Coatbridge
£28
Road by rigid Kirriemuir Tilbury £505 On Load Kirriemuir £0
container flat Bottling Plant Container (Bottling Company lift
bed lorry Terminal truck and staff)
2 days Off Load Tilbury £32
Demurrage Tilbury
Average 8 days
£15 per 24 hours
First 48 hours free
Rail by Coatbridge Southampton £315 On Load Coatbridge
Tansfreight Railport Container £15
Terminal Demurrage Coatbridge
1 day Average 72hrs. £12 per
24hrs, first 24hrs free
Off Load Southampton
£24.50
Demurrage
Southampton
Average 14 days
£55 per week (7 days)
First week free
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April 2013
Item Route from Route to and Cost per Transit extras
average 40ft
transit time container
Sea by Southampton Port de £1,880 On Load
Container Container Montreal Southampton £24.50
vessel Terminal Canada Off Load
10 days Canada £34 equivalent
Sea by Tilbury Port de £2,010 On Load
Container Container Montreal Tilbury £32
vessel Terminal Canada Off Load
11 days Canada £34 equivalent
Road by rigid Port de Ecosse Hotel £420 Demurrage
container Montreal Warehouse, Port de Montreal
flat-bed lorry Canada Boucherville, Average 2 days
Canada £18 equivalent per day
1 day No Free period
On Load
Port de Montreal
£32 equivalent
Off Load Boucherville
£0
(Hotel Company lift
truck and staff)
Notes
1 40ft Container Hire Costs £6.00 per day.
2 Insurance costs per container — Tilbury route £80, Southampton route Tilbury
costs plus 10% surcharge.
3 This data is for this assignment purposes only and should not be taken as
accurate.
Recommendation chart
Route Modes Least total cost
(Excluding standard on
costs such as customs,
etc)
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April 2013
Technical report 5 — Procedures and documentation
Case study extension
The senior management of Angus Glen Water is now comfortable with the proposed
routing of the containers carrying the filled water to Canada. However, they have no
knowledge of what the relevant documentation and procedures will be.
They have asked the Physical Distribution Manager to produce a report in table form
giving this information. They are particularly interested in the following areas,
transport, commerce and customs.
You should complete a table similar to that below showing the information required.
This should be accompanied by a brief explanatory note.
Procedures and documentation table
Area Procedures Documentation
Transport
Commerce
Customs
Scottish Qualifications Authority
Assessment Support Pack/H316 35/ASP001 V1
SCQF level 8 International Physical Distribution
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April 2013