Monique Ramos Balte

BSBAOM3A

1. Given all the trade theories discussed, why is there a need for nations to trade with each
other?

Trade theory often explains why nations trade. Whom and with what raw commodities do
they trade? The direction, composition, and amount of traded goods are all important
topics that trade theory examines. As a result, from what I understand, one of the
objectives of the trade theory presented is to establish an effective trading system among
nations. It makes an effort to explain existing trade patterns, their impacts on the
domestic economy, and the kinds of public policies that should be implemented to
enhance the well-being of the nation. People typically enter into transactions when they
don't have the resources or ability to meet their demands and interests. By cultivating and
utilizing its distinctive local resources, each nation can produce surpluses and exchange
them for the resources it needs. According to trade theory, increasing a nation's standard
of living is a major factor. Trade theory also makes recommendations for how a nation
may provide a wider variety of goods.

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

I feel that mercantilism was the best system of trade in the sixteenth century since it was
designed to increase exports while decreasing imports. It promotes imperialism, tariffs,
and subsidies for industrial goods to achieve this. The plan includes initiatives to increase
cash reserves through a favorable trade balance, particularly for finished goods, and it
aims to reduce or eliminate any potential current account surplus. Sources that were
safeguarded throughout the sixteenth century under the mercantilism movement
supported the idea that the nation's economic health significantly depended on the
availability of capital. Silver and gold were used as primary trading currency during the
16th to 18th centuries, and it was believed that increasing one's gold reserves at the
expense of other countries was the best method to increase one's nation's riches. This
behavior is frequently referred to as bullionism.
3. How did absolute advantage benefit the economic powers during 1776 such as the United
Kingdom of Britain and France?

The ability of a party (a person, business, or nation) to generate more of a good, service,
or other item than competitors is known as absolute advantage. Using labor as the sole
input in the context of international trade was viewed as having a clear benefit. Because
an absolute advantage is determined by a simple comparison of labor productivity, it is
possible for one side to not have an edge in anything. If a nation can produce a given
good in greater quantities than other nations while using the same or fewer resources, it
has a clear advantage over other nations. The United Kingdom of Britain and France
gained economically in 1776 from the absolute advantage. The United Kingdom of
Britain should focus on producing cloth and textiles because it has an unrivaled
advantage in this area. In fewer hours of work, they were able to create one unit of cloth.
France, on the other hand, needs to concentrate on wine production because of the
excellent land and climate there. Trade between these two countries would be more
favorable under mercantilism. France may supply all of the wine and textiles in the
United Kingdom.

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

The concepts of absolute advantage and comparative advantage are fundamental to

economics and international trade. According to the economic theory of Heckscher-
Ohlin, every nation exports its best and most productive goods. They significantly affect
how and why businesses and nations use resources to produce particular things. Absolute
advantage is a term used to express a country's or company's apparent advantage in
supplying a given good more effectively. Last but not least, the Heckscher-Ohlin model
illustrates how a nation acts and functions when the distribution of resources globally is
imbalanced. In addition to introducing opportunity cost as an analytical factor,
comparative advantage also includes it while deciding between various production
diversification strategies. Justify your actions mathematically. This shows that the two
countries, each of which has its resources, are in a healthy equilibrium.

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

The application of new trade theory in the Philippines is applied in how they have shifted
to machines for their production. In converting to using machines for its productions, the
Philippines has embraced the new trade theory. Currently, the Philippines is
implementing the new trade theory by integrating it with the technological system, where
many industries use machines to make their goods rather than hiring people. The
Philippines is highly dependent on technology since it is more productive than human
 labor. This theory contends that consumer-accessible economies of scale and a wide
range of products assist the Philippines in achieving its objectives.

6. Using Porter's Diamond, define the Philippines' service sector's four attributes.

 Factor Endowments: This word describes where a nation is about the infrastructure,
human capital, and other production elements needed to compete in a certain sector.

 Demand Conditions: This describes the characteristics of the domestic demand for the
good or service provided by the industry, which must be continually enhanced.

 Related Supporting Industries: This concept relates to whether a nation has supportive
and related industries that are internationally competitive to ensure synergy.

 Firm Strategy, Structure, and Rivalry: These terms describe the framework in which a
nation regulates the establishment, structuring, and administration of enterprises. Also
included are competitiveness-promoting policies.