MARCELLANA, ARIEL P. PROF.

AGUSTIN
BSA-31
QUIZ # 1 on Chapter 1 – Engaging in International Business

DIRECTION: Answer the following questions. Explain.

1) Do you believe that there still exist pure domestic organizations? Explain.
- For me yes, but they are not really known corporation like the ones that is top in the
market. In todays life more of the people is consuming or enojoting the brands from
international. The one factor that they are basing is the price because the international
products is cheaper than the domestic.
2) Think yourself as a company, would you consider yourself a purely domestic one, or with
some degree of internalization? Why?

-For me I would prefer to be a some degree of internalization because, It can attract more
investors to the point that if you are a international company specially stated in a country
that is more enjoying international product that their domestic product. As a company
there are more opportunity in international country you can propose new product to them
that is not available on their country.

3) On David Ricardo, Adam Smith’s view versus Hecksher-Ohlin, research and expound on
the differences. (You may use additional references, if needed)
- The contradictions in their theories, where absolute advantage (Adam Smith) requires
less capital to manufacture the same amount of products at a lower cost than other firms,
and competitive advantage (David Ricardo) requires a sacrifice/opportunity cost to make
a product at a lower cost. According to Hecksher-Ohlin countries export what they can
most effectively and abundantly make, which means they export what their country has
more of (the more resources they have the cheaper it gets).
- Ricardian Model
 The focus is on comparative advantage. The model suggests that the countries specialize
in producing goods and services that they can do best.
 The model assumes that there is only one factor of production, that is, labor.
 The model suggests that the trade occurs between countries because of the differences in
labor productivity that occurs because of technological differences.
 The model applies in the short-run because the technology can change internationally
over time.
Heckscher-Ohlin Model
 Unlike Ricardian Model, the model suggested by Heckscher-Ohlin assumes that there are
two factors of production, namely, labor and capital.
 One country has comparative advantage over the other because of the differences in
relative amounts of each factor.
 The model suggests that countries should produce and export goods using the resources
that they have in abundance. Similarly, the countries should import goods that require
resources that they have in short supply.
 Note that this model differs from the comparative advantage theory that focuses on the
efficiency of the production process. Because the country produces goods based on the
resources that they have in abundance, it will be cheapest to produce these goods. Very
broadly, countries that have more capital will specialize in capital-intensive goods and
countries that countries with more labor will specialize in labor-intensive goods. These
countries will trade these goods with each other.
 This model assumes that labor and capital can flow freely between sectors and that the
amount of these two factors differs among countries.
 The model also assumes that in the long-run countries have same technology.
 The Heckscher-Ohlin model suggests that there will be a redistribution of wealth between
the labor and owners of capital.

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