MC Economy and Trade Paper


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The Trade and Cooperation Agreement agreed between the UK and
the EU introduces frictions to trade. Using the Melitz model of
international trade with heterogenous firms as your theoretical lens,
critically discuss how these frictions affect which firms gain and
which firms lose.
A good answer will:
– Discuss the type of frictions arising from the TCA, highlighting that there will both
additional fixed and variable costs related, for example to custom and health
procedures and more time in transit.
– rely on the Melitz model, to argue that these additional costs will reduce profits of
exporting firms on both sides of the Channel. These will induce some firms to stop
exporting. According to the Melitz model, the additional fixed costs will affect
relatively more the least productive exporting firms, while additional variable costs will
be more negatively affecting the more productive firms.
– highlight that the fact that some firms will stop exporting, might favour some of the
least productive firms, which might benefit from reduced international competition.
– suggest in which industries these frictions will be higher and hence which will be
more negatively affected.
– mention that the additional cost of trading might encourage some of the relatively
more productive) firms to establish some multinational production in the other market.
The Japanese car maker Honda announced in 2019 that in 2022 it
will close its plant in Swindon (UK). Critically discuss how this
decision can be explained by the proximity-concentration trade-off.
A good answer will:
– Discuss the fact that the UK and EU markets have been shrinking, thus, according to
the proximity-concentration trade-off, making multinational production relatively less
– Highlight that the EU and Japan have entered a Economic Partnership Agreement
that will drop tariffs on export of cars from Japan to the EU. This will contribute to tilt
the relative profitability from multinational production in Europe, to production in
Japan to exploit concentration advantages and export to the EU
– Mention the fact that Brexit introduced frictions to trade between the UK and the EU,
thus reducing market access from the Swindon plant
The figure below (extracted from Amiti et al., 2019) shows the
dynamics of the prices of imported products after various waves of
tariffs introduced by the US Administration in 2018, compared with
the prices of imported products not hit by tariffs (labelled as
Critically discuss the welfare implications of this finding using
international trade theory.
Journal of Economic Perspectives
Page 2
Figure 4
Twelve-Month Proportional Change in Impor t Prices by Tariff Wave
Normalized twelve-month price changes
Wave 1
Wave 2
Wave 3
Wave 4
Wave 5
Wave 6
From: Amiti M., Redding S.J, Weinstein D.E. (2019) The impact of the 2018 Tariffs on Prices and
Source: US Census Bureau; US Trade Representative (USTR); US International Trade Commission
Welfare, Journal
of Economic Perspectives, 33, 4, 187-210,
(USITC); authors’ calculations.
Note: Proportional change in an import share–weighted average of twelve-month relative changes in US
import unit values inclusive of tariffs (import values divided by import quantities) for each tariff wave and
A good
for answer
unaffected will:
countries and products. Proportional changes for each wave are normalized to equal zero

in the
the introduction
of thehit
for tariff
the untreated
zero is defined
as in the
the prices in
by all
waves month,
have increased,
tariff wave. group
Tariff waves
defined in the
section “How Did T ariffs Affect US Prices?”
highlight that the increase in prices will increase profits for US producers competing with
hit by
and government
but reduces
By products
dividing the
by the quantities,
can tariffs
unit values
consumer welfare
at a veraymicroeconomic
disaggregated level:
for of
gloves that
and the
the welfare
of tariffs,
loss in
consumer welfare due to higher prices is higher that the gains in producer and government
so they correspond to foreign export prices. If we multiply these unit values by the
duty rates, available from the US International Trade Commission, we can compute
tariff-inclusive import prices. These tariff-inclusive prices provide detailed evidence
of prices
on what has been happening
to US
as a result
of the 2018 tariffs.
Figure 4 illustrates the overall patterns. The zero on the horizontal axis refers
to the month before each of the six tariff waves started. We subtract the price change
in the month before the tariff was implemented from each price change, so a zero
on the vertical axis corresponds to a price change that equals its value before the
tariffs were implemented. The price changes shown for each wave refer only to the
imports for the specific goods and countries affected by that wave of tariffs and are
weighted for each good according to its relative importance in imports. Thus, one
MMM143 2020/21 A 800
IMPORTANT – You must read this before you start your exam
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Please read the instructions below before the exam starts.
May/June 2022
MM231 2021/2 A 800
MM395 2020/1 A 800
Answers will be run through Turnitin. Please ensure any material that is
not your own is referenced, as per the module guidelines for your
coursework submissions. Penalties for plagiarism apply.
Answer TWO questions.
Each question carries equal marks
Word limit: 2,400
Version 1
Page 2
The article entitled “Poland and France keep turkeys on Britain’s
Christmas dinner menu” ( – which appeared in the Financial
Times on 1 October 2021 – argues that the UK will have to import
turkeys from France and Poland due to labour shortages (partly
related to post-Brexit immigration rules) that curtailed local
Critically discuss:
(a) To what extent the issue discussed in the article is consistent
with the Hecksher-Ohlin theory of international trade.
(25 marks)
(b) The alternatives available to the UK poultry industry to increase
local production of turkeys.
(25 marks)
2. Critically discuss
(a) Why the iPhone widens the US trade deficit with China.
(25 marks)
(b) What makes it particularly costly for Apple to assemble iPhones
in the US (besides the higher cost of labour).
(25 marks)
“The introduction of an import tariff has generally a negative effect
on welfare.”
(a) Critically discuss the statement above, highlighting under which
conditions the welfare effect of a tariff can instead be positive.
(25 marks)
(b) Based on the findings in Amiti et al. (2018), argue whether
these conditions for a positive welfare effect have been met in
the case of the 2018 tariffs imposed by the US.
(25 marks)
Amiti M., Redding S.J, Weinstein D.E. (2019) The impact of the
2018 Tariffs on Prices and Welfare, Journal of Economic
Perspectives, 33, 4, 187-210,
(End of Question Paper)
MM231 2021/2 A 800
Why Apple Inc. is The Most Innovative Company
Student’s name
Institutional Affiliation
Professor’s name
Table of Contents
Executive summary ……………………………………………………………………………………………………………………… 3
Introduction ……………………………………………………………………………………………………………………………….. 4
Company background ………………………………………………………………………………………………………………….. 4
Innovation audit ………………………………………………………………………………………………………………………….. 6
Industry characteristics …………………………………………………………………………………………………………….. 6
Past and present innovation techniques …………………………………………………………………………………….. 7
Innovation space ……………………………………………………………………………………………………………………. 10
Response to technological change ………………………………………………………………………………………………. 13
Conclusion ………………………………………………………………………………………………………………………………… 14
Recommendation………………………………………………………………………………………………………………………. 14
Reference …………………………………………………………………………………………………………………………………. 16
Executive summary
This report shows how Apple Inc. has managed to become innovative through its year of
creation up to date and why it is referred to as an innovative company. The research has analyzed
the innovation techniques used in the past and present by showing radical and incremental
innovation examples. In addition, it has been conducted using an innovation audit by looking at
the relationship between Apple Inc. and its competitors. Apple Inc. is known to create the
demand of customers rather than the customer creating the demand. This report will highlight
how the company has managed to deliver in hardware, software, service, and appliance
production and remain on top of the competition.
Why Apple Inc. is The Most Innovative Company
This research report provides an analysis of Apple Inc.’s innovation strategies. Observing
the past and present innovation strategies has made the company the global leader in innovation
and how it has managed to set trends with all the products they release to the market. Apple Inc.
has been proven to revolutionize the technological era, selling over 430 million products
annually since 2019 (How Many Products Did Apple Sell in 2019? n.d.). This paper develops an
analysis that focuses on the past and present radical innovation techniques that have made the
company overcome various obstacles to become a global leader. Furthermore, the study shows
how the company has become a hardware, software, service, and retail company. Apple Inc.’s
success has come from its structure, leadership, and culture, which has made it reach innovation
success. The report will look at the industry characteristics and the industry’s key competitors
while describing the internal capabilities that have produced the innovative ideas. Other
organizations can use this report to understand how competitors can make a technological market
evolve in an emerging market.
Company background
Apple Inc. is one of the most innovative companies, it was founded by Steve Jobs and
Wozniak Steve to manufacture microcomputers in 1975 (Apple Inc. | History, Products,
Headquarters, & Facts, n.d.). Today, the company manufactures most electronics, such as
personal computers, tablets, and computer software (O’Grady, 2009). For the business to move in
a successful direction, Steve understood that he required professional management and
substantial funding. They approached a well-recognized public relations specialist and
represented the company to secure investments from Intel Corporation. The firm became a huge
success afterward; it began to produce floppy disks and small data storage devices. In 1979, the
company created the first personal computer spreadsheet known as VisiCalc, a software program
that propelled their hardware sales (Apple Inc. | History, Products, Headquarters, & Facts, n.d.).
Through aggressive discounts and donations, apple established a commanding presence in the
market; early competition was also absent. The company developed two new computers in 1984
named Lisa and Macintosh, which was an innovative idea that led to the desktop revolution
(Apple Inc. | History, Products, Headquarters, & Facts, n.d.).
Later on, the company would start to fail. Still, Steve Jobs had a mission to revitalize the
company by focusing on the company’s traditional market of publishing and education and
assisted in overseeing the introduction of more affordable consumers (O’Grady, 2009). This
made the company introduce the iMac, and the product made an upscaling lifestyle that
emphasized design. Later in 2001, the company presented a computer program for playing music
and downloading music to MP3 format, applicable for pc and other devices. In that year, the
company introduced the iPod, a portable MP3 player that made them be on top of their rivals
(Apple Inc. | History, Products, Headquarters, & Facts, n.d.). Apple Inc. would later change the
mobile phone industry by introducing the iPhone, which has brought over billions in terms of
revenue. Today, the company’s products include; watches, mobile phone accessories, music,
iMacs, iPhone, Apple TV, and iPad. In 2018 the company became the first to reach $1 trillion
(Apple Inc. | History, Products, Headquarters, & Facts, n.d.). Based on the company’s
background, the company has focused on making products that are easy to use. Moreover, it
means that people new to technology could use most of their products with relative ease. It is
also known for producing various products from software, hardware, services, and appliances,
making it the most innovative company globally.
Innovation audit
Industry characteristics
Apple Inc. lies in the technological industry related to researching, developing, and
distributing technological-based products (Sniukas, 2020). The sector comprises a business that
revolves around designing and manufacturing electronics, products, and services related to
information technology and computers. The technological industry provides numerous products
for consumers and other businesses. The industry has been noted to produce products such as
personal computers, wearable technology, television, home appliances, and mobile devices,
which have continually been improved and added new features daily. On the other hand, many
businesses are becoming dependent on the innovations created in the technology sector. For
instance, they depend on developing enterprise software that manages the logistic systems,
delivering the vital information and services that consent firms to make strategic business
choices, and protecting their database.
The industry is among the most desirable investment destination, and they are known to
boost the economy in most countries. Some of the competitors in the technology sector include
IBM, Microsoft, Google, Samsung, and Amazon (Sniukas, 2020). Initially, the technology
industry was anchored by producing semiconductors, computing hardware, and communication
gadgets. The technological industry is always rapidly evolving; for instance, the development of
smartwatches is trying to get rid of certain smartphones; they are integrated with technology that
enables a consumer to make calls and perform certain functions that smartphones conduct, this
kind of shift is a complement to the threat of new entrants to the market which may bring stiff
completion to smartphones. At times, the tech industry is changes due to consumer preference
and market forces.
In the tech industry, that Apple has come across. Apple has managed to switch over its
suppliers at a low cost giving it more leverage over its suppliers (Aljafari, 2016). Due to the
brand awareness, Apple has driven to keep its suppliers fighting as their customers in the hope of
not losing money. Apple has taken its control to a different level by planning its chips, which has
reduced the supplier power of chips supplies. The industry has a low cost of consumers to switch
over; this feature has strengthened buyer power as a critical force for apple to decide. As a
distinct buyer, the bargaining power is low because the loss of any one consumer to an
organization is insignificant when it comes to the volume of revenue lost (Aljafari, 2016). Apple
Inc. has tried to upsurge the substituting cost for their commodities by keeping vital product
structures the same and easily movable across Apple products only, such as contacts, Pages
calendar, iCloud, Numbers, and iPhoto. The tech industry is known to take good care of its
employees whereby they have organized systems the implement and assist the staff members to
become accountable as well as empowering them to take proprietorship of their responsibilities.
Past and present innovation techniques
One innovation technique is Apple Inc.’s business model, which is intellectual property
intensive. This model has made apple generate high profits based on intellectual property.
According to Tian, W., Wang, M., & Wang, Q apple was awarded 2792 patents in the USA in
2020 due to technological innovation (Tian et al., 2022). The organization’s ownership of
intellectual property rights has been a significant aspect of its success. This has led to creating an
organizational structure that has created room for innovation. They have a rich top talent
resource in some industries, which guarantees the company’s ability to innovate. For instance, in
the acoustics sector, apple employees some of the JBL professional chief engineers to work in
that department. To dig a vast number of outstanding acoustic talents, the organization from
numerous universities and well-known acoustics firms created a robust acoustic research and
development team. Since the beginning of the industry, Apple Inc. believes in quality over
quantity, a significant talent pool feature, making the company have an elite culture (Eisner,
2016). Facts have demonstrated that this technique of attracting more outstanding talents to join
the company is very appropriate for Apple. Certainly, more and more talents are enthused by this
distinct culture and indicate to join the company.
Another innovation technique comes from hiring smart people and empowering them.
Apple Inc. employees are known to bring fresh ideas to bear significant problems and have new
solutions that the current staff members might have overlooked (Tian et al., 2022). Empowering
employees has helped the company make their staff motivated and engaged, contributing to the
best thinking. On the other hand, a company like Apple is required to work on deadlines; hence
there is a need for predictability and stability in developing new products and services. The
organization believes that it is essential to build flexibility in its processes. For instance, iPod,
iPhone, and Apple watch were not the first, but they were the modern ones to be created. Given
its market dominance, Apple has also ways looked past the crowd thinking; for instance, the
launch of the iPhone had many critics claiming that the product would take off since it didn’t
have a physical keyboard, but it sold over 1.5 billion. The key here has been giving attention to
their customer’s feedback while not paying attention to unhelpful messages.
The firm had ways of organizing tremendous innovations, and it has been noted to
produce success in the last two decades, especially since the revenue exploded in 2008. The
functional structure and leadership changed with the evolving technological environment (Rikap,
2018). Tim cook’s adjustment in recent years has divided hardware technologies into adding
artificial intelligence and having software that integrates with it. The company’s functional
organization is rare, if not unique, among the vast companies. Apple required leaders to fullyfledged transformation, making the leader transition to an active organization. Their approach
has proved that the risks justify the reward, and their system has produced tremendous results.
Innovation space
Figure 1.1
Incremental Innovation
Radical Innovation.
1. The fingerprint sensor
2. Smartphone capacity.
3. Leadership style
4. Partnership
5. Globalization
6. Unique technologies
7. Digital music
8. Online platform
9. Customer loyalty
10. Redesigning products
11. Customization of products.
Mapping the innovation space of Apple Inc. shows the company fully uses the 4ps of the
innovation model, which includes the product, process, position, and paradigm, this is well
illustrated in figure 1.1. The company is known to have been characterized by radical
innovations. Therefore, the new technology products create dramatic change and evolve the
current market customarily. The company has managed to change the world consumer perceptive
by producing digital lifestyle products. The product doesn’t tackle the demand; instead, it creates
the demand that the consumer doesn’t recognize. The company had a greater impact on the
printing market with the first laser printer. This led to the demand for a commodity that wasn’t
known to the customer. The annual iPhone upgrades were not revolutionary, but the
improvements implemented were extremely impressive. Over time, the camera quality
improvement has been the game-changer, offering competitors an advantage. By applying its
core competencies of technology to the future goals, the company products achieved radical
innovation, and the whole world felt them.
Process innovation implies implementing business processes that deliver value to
customers to reach the target goal. Process innovation focuses on internal affairs and purposes to
increase the competence and effectiveness of the organization’s operations to enable the
production and distribution of goods and services. The company’s leadership was some of the
critical factors of success. For instance, Steve Jobs was a visionary, Wozniak was a technical
genius, and Markkula was one of the experienced businessmen on the Apple team. Apple’s
innovative process mainly focused on making many people’s lives better (Tian et al., 2022). In
addition, its partnership with other companies, for instance, AT&T, helped in the iPhone
distribution (Harris et al., 2020).
The position innovation involves the changes in the context in which the products were
introduced. Apple’s position innovation comes in its marketing strategy, their segmentation and
targeting represent the core of its marketing efforts. The company started by segmenting the
market and dividing the target population into groups based on age, lifestyle, and occupation.
Mac pc contained features for both professionals, and others included games for kids. Apple’s
positioning helped it create a brand with an emotional connection to its customers in this
competitive industry; since the competition was high, it ensured that it would continue investing
in its products by making unique technologies for its target market (Tunjungsari et al., 2020).
Apple’s intensive growth is supported by its ability to maintain a strong position in the global
market; it has managed to sell over 400 million units since its release. IPod innovation was the
first innovative program developed for music players, which effectively killed the Walkman
technology (Sniukas, 2020). This strategy was to reach generation Z, obsessed with the digital
music platforms they created.
Apple has a long-term establishment of its relationship with customers, making them
loyal, leading to the incremental paradigm innovation (Tunjungsari et al., 2020). The redesigning
of their computer by adding a graphical user interface was a pioneer in the industry; moreover,
the addition of high-performance features and technology to their smartphones gave the company
a competitive advantage (Gao, 2021). The company has managed to redesign its products to
more sophisticated devices; for instance, the iPhone 13 could have a storage capacity of 1TB.
Whenever consumers create new demands as some individual preference, Apple has managed to
do so. They started to launch some of their iPhones in the color gold to consider the Chinese
market. Some have even gone to the extent of ordering gold-plated cases from the company and
diamond smeared based on their preference (Giachetti, 2018).
Response to technological change
Apple was the first to modernize a personal computer before the computer were sold in
kit form, sold in switches and lights instead of keyboards and monitors. They would later
introduce the iMac, the first legacy pc, and it relied on a USB connection. Furthermore, it was
designed to deal with the rise of internet connection, and it was the ultimate internet appliance. It
looked different from other computers, but it inspired other manufacturers. The iPhone
developed new industries as it destroyed others. The company provided developers with a new
range of tools; for instance, Xcode 13 added powerful development features to work with Xcode
cloud and Gitlab collaboration. In addition, it added the third-party video calling application
which took advantage of face time enhancement or voice isolation features.
The technology industry is very lucrative with many industry players; the initiative calls
for innovativeness so that a company in such an industry remains relevant. This can be attributed
to the low bargaining power of suppliers due to the vast number of suppliers. Apple company has
made sure to incorporate innovation into its company culture. One innovation technique is Apple
Inc.’s business model, which is intellectual property intensive. This model has made apple
generate high profits based on intellectual property. The organization’s ownership of intellectual
property rights has been a significant aspect of its success. Secondly, the recruitment of
intelligent people and their empowerment has helped in the motivation and innovativeness of the
employees, and the flexibility gives them a chance to express themselves. The company’s
organizational structure has also played a significant role in innovation. With the way they
organized their leaders and how the hierarchy managed tremendous innovations for release to the
market. Unlike other companies who try to tackle demand, the company creates demand for their
product. The Apple brand has created products that stand out in the market, create a bond, and
give the customers a status, building customer loyalty. The study of the apple company has led to
the conclusion that apple relies on functional design, innovation and retailing rather than its
products making the company have significant control of its products.
The company’s actions and commitment should be integrated to exploit the core
competencies and the strength of its competitive advantage. The business should invest more in
research and development to stay ahead of radical products and new technology. Based on the
paper results, the company can use its strong brand to rapidly innovate to create and expand to
most the electronic product. The company should continue to innovate in developing new
products aggressively, and the company should enhance the automation process and support it to
address the labor cost. Another recommendation is that the company engage in more partnerships
with distributors to learn how to overcome the African market and improve the global market
Advanced Business Portal. n.d. How Many Products Did Apple Sell In 2019?. [online] Available at:
[Accessed 6
May 2022].
Aljafari, A. (2016). Apple Inc. industry analysis business policy and strategy. International Journal of
Scientific & Engineering Research, 7(3), 406-441.
Eisner, S. (2016). The” In-Factor”: Signature Traits Of Innovation’s Leaders. Journal of Applied
Business Research (JABR), 32(1), 185-200.
Encyclopedia Britannica. n.d. Apple Inc. | History, Products, Headquarters, & Facts. [online] Available
at: [Accessed 6 May 2022].
Gao, J. (2021). Analysis of Diversification strategy of Apple Inc. Academic Journal of Business &
Management, 3(9).
Giachetti, C. (2018). SAVELLI: A Luxury Smartphone for Affluent Women with a Passion for Jewelry.
In Smartphone Start-ups (pp. 137-182). Palgrave Macmillan, Cham.
O’Grady, J. D. (2009). Apple Inc. ABC-CLIO.
Sniukas, M. (2020). Business Model Innovation as a Dynamic Capability. Springer International
Tian, W., Wang, M., & Wang, Q. (2022, March). The Core Competentness of Apple Inc. In 2022 7th
International Conference on Financial Innovation and Economic Development (ICFIED
2022) (pp. 718-725). Atlantis Press.
1. Why the iPhone widens the U.S. trade deficit with China.
Balance of Payment (BoP) is a major factor associated with international trade. Balance
of Payment refers to the total market value of all goods and financial assets that local or
domestic economies, businesses, and governments exchange with other nations within a
specific period. BoP focuses on the current, private, and official settlement balance accounts
within a country. The current account records goods, services, income, and unilateral
transfers in a country. The capital account records investment flows and changes in banks,
brokers, and cash deposits from foreign transactions. The official settlement balance
measures the official government agencies’ financial assets and deposit transactions.
BoP can either be positive or negative. If the sum of debit (Imports) and credit (exports)
account is positive, the private payments received from foreign sources are more than the
payments made to foreigners. The official settlement balance is negative and has a BoP
surplus. In other words, a BoP deficit will occur if the country’s exports are less than its
imports. This is because the country makes a lot of payments abroad while receiving less,
thereby having less cash.
After Donald Trump was electe