foreign sector

• Causes of reduced supply


  • Lack of materials
• Theory of Absolute Advantage


  A country can produce a product more efficiently than others
• Absolute advantage


  Can produce product with less resources
• Adam Smith - Father of Modern Economics
• An Inquiry into the Nature and Causes of the Wealth of Nations
• Countries have natural advantage over others


  Trading makes more goods available
• Don't have to produce everything, make what you can, get what you can't from others
• Specialization - country focuses on limited variety of goods
• Theory of Comparative Advantage

  David Ricardo expanded on Theory of Absolute Advantage
• Comparative advantage


  Best option with least opportunity cost
• Theory of Factor Abundance

  Country has comparative advantage in goods which factors of production are abundant locally
• If lots of labor, produce labor-intensive goods. If lots of capital, produce capital-intensive goods
• Advantages of trade


  • Broadens supply of goods and services
  • Get what we lack from others
• Economies of Scale


  Lowering unit price of production as production increases, people buy more, sell more to others
• Immigration and transfer of technology breaks domestic monopolies, generates employment
• Balance of Trade


  Difference between monetary value of exports and imports within a given period of time
• Types of Trade Barriers

  • Natural (distance, land/water forms)
  • Cultural (language, religion, tradition, ideologies)
  • Policy (tariffs, quotas, standards, embargoes, exchange controls)
• Top 3 export partners of Philippines
• Top 3 import partners of Philippines