Module 1 - Lesson 3 - International Business and Trade

Republic of the Philippines
Biliran Province State University

(Formerly NAVAL STATE UNIVERSITY)
ISO 9001:2015 CERTIFIED
Naval, Biliran
BACHELOR OF
SCIENCE IN
BUSINESS
INTERNATIONAL BUSINESS
AND TRADE
BA 317
LESSON 3
Module 1
JONAS A. ENRIQUEZ
Instructor
Absolute Advantage and Comparative Advantage
Intended Learning Outcomes

Second Semester, SY 2020-2021
At the end of this lesson, you are expected to:
Name of Student: ________________________________________________________
1. Select an international business as the subject of the case study.
2. Develop the&case
Course, Year study
Section: by identifying the progress of the business from the host
___________________________________________________
country up to the country where the business is operating.
Contact Number:
3. Critically ________________________________________________________
analyze the differences in the political/legal systems, economic
dimensions, and cultural dynamics.
Overview:
Ground Floor Administration Building, Main Campus, P. Inocentes St., P.I. Garcia, Naval, Biliran Province, Phillipines 6560
Tel. (053) 507-0082‫ ן‬Telefax. (053) 507-0082 & Cell # 0995-471-5907
SUC Level III-A (Per DBM-CHED Joint Circular #B dated June 21, 2007
Website: www.bipsu.edu.ph ‫ ן‬Email: op@bipsu.edu.ph ‫ ן‬Facebook: www.facebook.com/WowBiPSU
International business and trade are an advanced subject for BSBA students. At the
beginning of this course, all students will focus on the development of the concepts of
international business. This subject is underlined most in the trading system.
Notwithstanding, this focuses first on the theories that the students may able to directly
observe in their surroundings.
Let’s Start
International Trade: Theory and Applications are not only about business interests in a
particular country. Likewise, global trade is much more of this, in fact, it is quite complicated
and high-risk but manageable and can offer a very interesting invested return.
Understanding the theories on absolute advantage and comparative advantage gives way to
developing effectively in terms of trading systems.
Smith argued that specializing in the

products that they each have an absolute
advantage in and then trading the products,
can make all countries better off, as long as
they each have at least one product for
which they hold an absolute advantage over
other nations.
Countries with an absolute advantage can

decide in producing and selling a specific
Illustration 1 good or service and use the generated
funds to purchase goods and services from
other countries.
Answer me:
1. Justify how absolute advantage manage to develop the economic stability of the
such particular country.
Absolute advantage is the ability of a country to produce a good or service more

efficiently than another country, using the same amount of resources. A country with
an absolute advantage can produce more output with the same input, or the same
output with less input. This means that the country can produce the good or service
at a lower opportunity cost, which is the value of the next best alternative foregone.
By having an absolute advantage, a country can increase its economic stability by

specializing in the production of the good or service that it can produce most
efficiently, and trading it for other goods or services that it needs or wants. This way,
the country can make use of its comparative advantage, which is the ability to
produce a good or service at a lower opportunity cost than another country. By
trading based on comparative advantage, both countries can benefit from mutual
gains from trade, and increase their total output and consumption.
Therefore, absolute advantage can help a country to develop its economic stability
by allowing it to produce more efficiently, reduce its opportunity cost, and increase its
trade and consumption possibilities.
2. Within the concept of absolute advantage, identify particular advantage of your chosen
product.
JEEP Company is an American automobile manufacturer that specializes in off-road and

sport utility vehicles. One of the absolute advantages of JEEP Company is its brand
recognition and reputation. JEEP has been producing vehicles since 1941 and has a loyal
customer base that values its durability, reliability, and performance. JEEP also has a strong
global presence and exports its vehicles to more than 140 countries. Another absolute
advantage of JEEP Company is its innovation and technology. JEEP invests heavily in
research and development to improve its products and meet the changing needs and
preferences of consumers. JEEP has introduced several features that enhance its vehicles'
off-road capabilities, such as the Quadra-Drive II four-wheel drive system, the Selec-Terrain
traction control system, and the Trail Rated badge. JEEP also offers a range of models that
cater to different segments of the market, such as the Wrangler, the Grand Cherokee, the
Compass, and the Renegade. These are some of the absolute advantages of JEEP
Company that give it an edge over its competitors in the automobile industry.
3. Critically discuss the impact of the absolute advantage in the local area.
Absolute advantage is the ability of a country or a region to produce a good or a

service more efficiently than another country or region, using the same amount of
resources. The impact of absolute advantage in the local area can be positive or
negative, depending on the type of good or service, the level of competition, and the
distribution of benefits.
One possible positive impact of absolute advantage is that it can increase the
income and welfare of the local producers, who can sell their products at lower
prices and higher profits than their competitors. This can also stimulate innovation
and productivity, as the local producers have an incentive to improve their efficiency
and quality. Moreover, absolute advantage can create a comparative advantage for
the local area in the international market, as it can export its products to other
countries and earn foreign exchange.
However, absolute advantage can also have negative impacts on the local area,
especially if it is not accompanied by fair trade policies and social welfare measures.
For example, absolute advantage can create a monopoly or an oligopoly situation,
where the local producers dominate the market and exploit the consumers by
charging high prices and reducing the variety and quality of products. This can also
reduce the incentives for innovation and productivity, as the local producers have no
competition or threat from other regions. Furthermore, absolute advantage can
create inequality and social unrest, as the benefits are concentrated in the hands of
a few producers, while the costs are borne by the consumers, workers, and the
environment.
In conclusion, absolute advantage can have both positive and negative impacts on
the local area. It can increase productivity, efficiency, income, and trade for the local
economy, but it can also create dependency, vulnerability, inequality, and social
problems for the local society. Therefore, it is important to balance the benefits and
costs of absolute advantage and to pursue policies that can enhance its positive
effects and mitigate its negative effects.
Let’s Analyze
Comparative Advantage
Comparative Advantage
Illustration 2
Activity 12: Comparative Advantage

1. Justify how comparative advantage manages to develop the economic
stability of such a particular country instead of absolute advantage.
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
2. Within the concept of comparative advantage, illustrate the particular advantage of

your chosen product.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
3. Critically discuss the impact of the comparative advantage in the local area.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Let’s Dig Deeper
Activity 13. Absolute and Comparative Advantages
Theories Advantage Disadvantage
Absolute
Comparative
Let’s Use it:

SWOT Analysis:
STRENGTHS WEAKNESSES
INTERNAL 1. 1.
2. 2.
3. 3.
EXTERNAL 4. 4.
5 5.
OPPORTUNITIES
1.
2.
3.
4.
5.
THREATS
1.
2.
3.
4.
5.
ASSESSMENT
1. Demonstrate the impact of the two theories

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.
2. Which of the two theories described most to your business? Support your answer.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________.
COURSE
POST TEST
Test I. Comprehensively discuss the following:

(You may extend the lines if more space if needed)
1. Define in your own words the following and give an example each.
A. Absolute Advantage
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
B. Comparative Advantage
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________.
C. SWOT Analysis
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________.
D. What particular products of the Philippines are suited for:
1. Absolute Advantage
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
.
2. Comparative Advantage
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

Module 1 - Lesson 3 - International Business and Trade

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Module 1 - Lesson 3 - International Business and Trade

Uploaded by

Copyright:

Available Formats

Republic of the Philippines

Biliran Province State University

Absolute Advantage and Comparative Advantage

Intended Learning Outcomes

Smith argued that specializing in the

Countries with an absolute advantage can

Absolute advantage is the ability of a country to produce a good or service more

By having an absolute advantage, a country can increase its economic stability by

JEEP Company is an American automobile manufacturer that specializes in off-road and

Absolute advantage is the ability of a country or a region to produce a good or a

Activity 12: Comparative Advantage

2. Within the concept of comparative advantage, illustrate the particular advantage of

Let’s Dig Deeper

Activity 13. Absolute and Comparative Advantages

Theories Advantage Disadvantage

Let’s Use it:

1. Demonstrate the impact of the two theories

Test I. Comprehensively discuss the following:

You might also like