BM1917

QUIZ ON INTERNATIONAL TRADE THEORY

NAME: Von Marvic M. Ponce SECTION: BSBA-301 DATE: SCORE:
14/10/2023

QUESTIONS (6 items x 5 points):

1. Given all the trade theories discussed, why is there a need for nations to trade with each other?
Answer: Nations trade for a variety of compelling reasons. The first benefit of trade is that it enables nations to
focus on producing commodities and services in which they have a comparative advantage, increasing total
productivity and efficiency on a global scale. It gives countries access to resources and technology that may be
in short supply or not available domestically, boosting their productivity and economic development. Trade
encourages competitiveness, which leads to innovation and productivity gains within domestic businesses.
International trade also strengthens diplomatic contacts and interdependence, which lessens the chance of
international wars. By giving customers access to a greater range of reasonably priced goods and promoting
economic growth through more job possibilities, it can raise living standards. Trade also lessens vulnerability to
economic downturns in any one market by dispersing output over several geographical areas. Additionally,
countries engage in trade to maintain a positive trade balance or surplus, which can support their currencies
and financial markets. This helps them maintain a balance of payments. Finally, commerce encourages cross-
cultural communication and understanding, fostering a more connected and peaceful globe. Global economic
growth, international stability, and an improvement in the standard of living for all people depend heavily on
international commerce.

2. Why was mercantilism the best trading system that can be applied during the sixteenth century? What was their trade
currency?

Answer: Due to the economic and political climate of the era, mercantilism was regarded as the dominant
trade doctrine during the sixteenth century. Mercantilism placed a strong emphasis on creating a positive trade
balance exporting more goods than you import to build up wealth and resources for the state, particularly
precious metals like gold and silver. This strategy was viewed as a means of boosting a country's power,
economic might, and self-sufficiency. Gold and silver were often used as trade money at this time, especially in
European mercantilist countries. These metals supported the value of currencies and aided in commercial
transactions, which helped people amass riches. Nations thought that the more gold and silver they
accumulated, the more prosperous they would be, allowing them to increase the size of their armies, fund their
businesses, and invest in infrastructure. While mercantilism was prevalent in the sixteenth century, it's crucial to
note that current economic theory understands its limits because it frequently led to trade restrictions,
protectionism, and, in the long run, stifled economic progress. Later economic theories, such free trade and
comparative advantage, came into existence to offer more effective and advantageous trading frameworks.

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3. How did absolute advantage benefit the economic powers during 1776 such as the United Kingdom of Britain
and France?
Answer: Absolute advantage was a cornerstone of international trade in 1776, when Adam Smith popularized
the idea in "The Wealth of Nations," a landmark work. It was emphasized that a nation may profit by
specializing in the production of commodities or services that it could produce more effectively and affordably
than other countries. Being the two dominant economies at the time, the United Kingdom (Britain) and France
took use of their unquestionable advantages to grow their respective economies and trade ties. With its
sophisticated industrialization and effective production methods, Britain had a clear edge in the manufacture of
equipment and textiles. As a result, they were able to export these items and control the world textile market,
strengthening their economy. As a result of its ideal environment and competence, France, on the other hand,
excelled in the markets for luxury products, wine, and agriculture, giving it a competitive advantage. Both
countries were able to concentrate in their respective industries, increase their exports, and amass money
through trade because to their indisputable advantages. They became the main economic powers at that time
due to the wealth brought about by this specialization, which also spurred economic expansion, scientific
improvements, and the accumulation of capital.

4. How does comparative advantage differ from absolute advantage and Heckscher-Ohlin’s theory?

Answer: Key ideas in international trade theory include the Heckscher-Ohlin theory, absolute advantage, and
comparative advantage. When a nation can create an item or service utilizing fewer resources than another
nation, that nation has an absolute advantage. On the other hand, comparative advantage emphasizes a
nation's capacity to produce a certain item or service at a lower opportunity cost than its trade counterparts.
Instead of emphasizing absolute production, it promotes relative efficiency in resource allocation. To identify
specialization, the Heckscher-Ohlin theory builds on the concept of comparative advantage by considering a
nation's plentiful resources. According to this theory, a nation would export commodities made with its plentiful
resources and buy things made with its limited resources. When attempting to explain trade patterns and
advantages based on resource availability, this theory considers factor endowments such as capital, labor, and
land. While Heckscher-Ohlin theory dives more deeply into the fundamental mechanisms determining trade
patterns based on resource distribution, comparative advantage is more adaptable and dynamic.

5. How is the new trade theory applied today in the Philippines?

Answer: Currently, the Philippines is implementing the new trade theory by concentrating on the manufacture
and export of unique and specialized goods and services. To participate in sectors like business process
outsourcing (BPO), information technology, and electronics manufacturing, the nation takes advantage of its
distinctive assets, such as a youthful, educated workforce. In these industries, the Philippines places a strong
emphasis on international competitiveness with the goal of dominating the global market. To broaden its market
reach and integrate into global value chains, it also makes use of regional trade agreements and partnerships.
To increase competitiveness and involvement in the global economy, this strategic approach is consistent with
the tenets of the new trade theory.

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6. Using Porter’s Diamond, define the Philippines’ service sector’s four (4) attributes.

Answer: Applying Porter's Diamond model to the Philippines' service sector, factor endowments highlight a
young, educated, and proficient workforce as a critical asset. This highly skilled labor pool serves as a
competitive advantage, particularly in labor-intensive services like business process outsourcing (BPO), where
the Philippines has become a global hub. Demand conditions are shaped by a growing global market for
outsourcing and offshoring services. The increasing demand for cost-effective and high-quality services,
combined with the proficiency of the workforce, has propelled the growth of the service sector in the
Philippines. In the ecosystem, related and supporting industries are essential. Among other industries, the
IT and telecommunications sectors have grown dramatically, providing crucial support services and
infrastructure that strengthen the service sector's competitive edge. These industries' presence supports the
entire service cluster. Firm strategy, structure, and rivalry are influenced by a competitive landscape,
encouraging firms to innovate, improve efficiency, and adopt modern technologies. Intense rivalry drives
organizations to constantly enhance their services, adopt best practices, and seek differentiation, fostering a
culture of continuous improvement and innovation within the service sector. This fosters a competitive
environment that further solidifies the Philippines' position in the global service market.

Rubric for grading:

CRITERIA PERFORMANCE INDICATORS POINTS
Provided pieces of evidence, supporting
Content 3
details, and factual scenarios
Expressed the points in a clear and logical
Organization of Ideas 2
arrangement of ideas in the paragraph
TOTAL 5

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