MERCANTILISM
THEORY
Mercantilism is an economic practice that
started with the commercial revolution. This
practice aims to increase the wealth of a
nation through export trading, which will
increase the nation's supply of gold and
silver.
Protectionism is a government-imposed
policy in order to control the inflow of gold
and silver through tarrifs and quotas and to
discourage imports, which they think is
counterproductive to their goal.
Adam Smith sees mercantilism as a political
movement in which it enhances the
economic power of states by increasing
their treasury. He also illustrated that free
trade is much better than mercantilism.
COMPARATIVE
ADVANTAGE THEORY
If absolute advantage looks at the cost of
producing the same goods and services,
comparative advantage looks at the
opportunity cost of producing different
products than their competitors.
The perspective comes from knowing that a
country or entity has the capacity to
manufacture a wide range of goods and
services rather than focusing on a single
commodity.
ABSOLUTE ADVANTAGE
Absolute advantage considers the
efficiency of creating a single product. It
also examines how to manufacture goods
and services at a lower cost by using fewer
inputs during the manufacturing process
than competitors.
A state can achieve an absolute advantage
if their country is abundant in factors of
production such as labor, natural resources,
and capital.
HECKSCHER-OHLIN
THEORY
This theory explains that countries
exchange goods and services with each
other due to the differences in their
absolute and comparative advantages of
factors of production.
A country's need for factors of production
can be met by another country due to the
availability or accessibility of a specific
factor, and vice versa.