Review Questions

1. Differentiate the theory of absolutely advantage from the theory comparative

advantage.
 The differences between the absolute and comparative advantage
theories are subtle. Absolute advantage looks at absolute productivity
differences while he comparative advantage looks at relative productivity
differences. However, both Smith and Ricardo agree that trade is neither
possible nor profitable when there are equal differences in costs.

2. What is balance payments?

 The balance of payment is the statement that files all the transactions
between the entities, government anatomies, or individuals of one country
to another for a given period of time. All the transaction details are
mentioned in the statement, giving the authority a clear vision of the flow
of funds. After all, if the items are included in the statement, then the
inflow and the outflow of the fund should match. For a country, the
balance of payment specifies whether the country has an excess or
shortage of funds. It gives an indication of whether the country’s export is
more than its import or vice versa. A balance of payment is an essential
document or transaction in the finance department as it gives the status of
a country and its economy.

3. What is protectionism? How it is practiced by certain countries?

 Protectionism is the practice of following protectionist trade policies. A
protectionist trade policy allows the government of a country to promote
domestic producers, and thereby boost the domestic production of goods
and services by imposing tariffs or otherwise limiting foreign goods and
services in the marketplace. Protectionism is a government-imposed trade
policy by which countries attempt to protect their industries and workers
from foreign competition. Protectionism is commonly implemented by the
imposition of tariffs, quotas on import and exports, product standard, and
government subsidies.

4. Why are there trade barriers?

 Countries have trade barriers due to many reasons. Some of them are: To
protect domestic farmers from outside competition. To prevent loss of
unemployment which could occur due to loss of manufacturing in the
country. The most common barrier to trade is a tariff–a tax on imports.
Tariffs raise the price of imported goods relative to domestic goods (good
produced at home). Barriers to trade are often called “protection” because
their stated purpose is to shield or advance particular industries or
segments of an economy.
5. Based on the article “Bra Matters: From Feminism to Trade Wars”, what can an
exporting company do when faced with import quotas? Why do trade liberals
favor use of tariffs instead of import quotas?
 The exporting country will set an export quota to adjust the number of
exports and improve export efficiency. The importing country will set
an import quota to limit the number of goods imported into the country, to
protect domestic production, resources and improve the balance of
payments. Only fools favor tariffs. In a globalized world economy, tariffs
cannot work. Just look at companies based in China. Trade liberals hate
both ideas. Technically either can be used [or rather, misused], but they
both make the situation worse. Maybe tariffs can be deemed less terrible
since the buyers and sellers have more freedom to act. When hit with
tariffs, most spent $500 to open a subsidiary in the USA or Canada or
Mexico or any of the dozens of countries not affected by the tariffs,
changed the letter heads, and kept on keeping on. If the goal is supporting
national businesses, the role of government is making sure the playing
field is level so national businesses can use their huge advantage of
location to compete and defeat, not corporate welfare or ANP idiots
meddling with far smarter businessmen.

6. Identify some imported products. What is the comparative advantage of the

countries from where these products are imported?
 A country that produces a large amount of oil charges a local chemical
manufacturer less to purchase their product since it is cheaper to sell the
oil to them than export it overseas. Since the chemical manufacturer is
paying less for the materials they need to produce chemicals, they can sell
their finished products at a lower price than other countries. This makes
them more competitive in the chemical production industry. Therefore, this
company has a comparative advantage over other chemical production
companies.
 A telecommunications company in the United States chooses to hire
customer service representatives from India because it is more cost
effective than opening a new call center in America. They use their
savings to provide cheaper internet and phone services than their
competitors. Even though their service may not be the best available,
customers choose to sign up for their internet and phone plans to save
money. In this example, providing a less expensive service outweighs
providing a quality service. Therefore, this telecommunications company
has a comparative advantage over other telecommunications companies
in the United States.
7. Select two provinces or regions in the country and find out the particular skill or
product they specialize in. Example is the woodcarving skill/ woodcraft in Paete,
Laguna. Investigate further if these products are already exported to/ available in
the international market.
 Pineapple in Polomolok, Region 12
 Banana

CITY / MUNICIPALITY KIND OF BANANA PLANTED BEARING (HAS)

DISTRICT I
Cardava 118
Alamada
Lacatan 77
Aleosan Cardava 180.5
Banisilan Cardava 27
Carmen Cardava 393.5
Kabacan Cardava 21
Libungan Cardava 205.5
Midsayap Cardava 351.2
Pigcawayan Cardava 550
Pikit Cardava 715.66
DISTRICT II
assorted (Private owned plantations) 200
Antipas
cavendish (SUMIFRU PHIL CORP) 320.1475
Arakan lakatan 73.5
lakatan 1260.2
Kidapawan City
cavendish (DOLE STANFILCO) 541.42
lakatan 1901.5
Magpet cavendish (DOLE STANFILCO) 84.69
cavendish (SUMIFRU PHIL CORP) 392.2004
lakatan 1221.61
Makilala
cavendish (DOLE STANFILCO) 1105.34
cardava 378.75
latundan 59.7
Matalam
lakatan 45.5
cavendish (SUMIFRU PHIL CORP) 1866.3675
M’lang cardava 395
Pres. Roxas cardava 381
 lakatan 58
cavendish 177.1644
Tulunan cardava 655
TOTAL 13,756.4498

8. Get data the recent balance payment situation of the country. Assuming you are
a small trading company, how will the situation affect you?

Internet Exercise
1. Surf the web and find out how the anti-dumping law in the Philippines protects
Filipino exports against this business this business practice.

 Dumping occurs when a country's businesses lower the sales price of

their exports to gain market share. By flooding the target export market
with drastically lowered prices, it often puts that nation's competing firms
out of business. Learn about the pros and cons of dumping, and what
measures nations take to prevent it. With dumping, a country's businesses
drop their product's price on the foreign market below what it would sell for
at home. They may even push the price below the actual cost to produce.
Then they raise the price once they've destroyed the other nation's
competition.
2. Surf the web and read thoroughly on the boycott of Danish products by the
Muslim world. What should the Danish government and exporters do to prevent
this trade war?

National Security Argument:

 Each nation protects some industries to guard its national security. The
most obvious examples are weapons, aerospace, advanced electronics,
semiconductors, and strategic minerals (e.g., exotic ores used in jet
aircraft), etc. Protection for the sake of making available specific minerals
or resources does not appear to be an optimal poicy. A better alternative
is to stockpile such resources during peacetime when they are cheap.