1.

List some products in the Philippines exports that demonstrates the Theory of Comparative
Advantage.

Before giving the needed answer, let’s define first what is comparative advantage and the Theory of
Comparative Advantage.

Comparative Advantage is the economy’s ability to produce a particular good or service at a lower
opportunity cost than its trading partners. Thus, giving the company the ability to sell goods and
services at a lower price than its competitors and realize stronger sales margins. The theory of
comparative advantage by David Ricardo, simply can be explained as the introduction of opportunity
cost as a factor for analysis in choosing between different options for production.

Here in the Philippines, we have abundance when it comes to agriculture, which is one of our major
exports –Banana fruits to be specific. Banana is exported by the Philippines specifically to Japan. Just a
brief information, in Japan, we can find bananas at supermarkets, convenience stores and groceries. It is
said that 9 to 15 bananas are consumed by one household every month in Japan. However, the
production of bananas in Japan is quite low, and we import bananas from overseas to make up for the
gap in domestic production. They are importing mainly from the Philippines, which is according to my
research Japan is one of the largest trade partners of the Philippines. Since, we have abundance in
agriculture, Philippines produced agricultural products with low opportunity cost compared to other
competing countries (such as United States, Costa Rica, Colombia, Belgium, Myanmar and Mexico to
mention some) making it a comparative advantage. Now to apply, the Theory of Comparative
Advantage, Philippines is willing to sacrifice its Banana fruits products in exchange of wheat knowing
that Philippines cannot realize grain-based agricultural product, and knowing that the Philippines
produces no wheat, and wheat flour is increasing in importance in the diet of its people with growing
affluence. Hence, we can conclude that Philippines has comparative advantage in Banana while Japan
has the comparative advantage in wheat. Following Ricardo’s theory of comparative advantage in free
trade, if each country specializes in what they enjoy a comparative advantage in and imports the other
good, they will be better off. Recalling that there’s a low production of Banana in Japan and there’s no
wheat production in the Philippines.

Another agricultural product that Philippines exports are totaled $924 million in 2019. Leading
categories include: tropical oils ($353 million), processed fruit & vegetables ($165 million), fruit &
vegetable juices ($112 million), tree nuts ($92 million), and raw beet & cane sugar ($36 million). In the
matter of the theory wherein more likely putting countries in a “give-and-take” situation, U.S. total
exports of agricultural products to Philippines totaled $2.9 billion in 2019, our 10 th largest agricultural
export market. Leading domestic export categories include: soybean meal ($788 million), wheat ($708
million), dairy products ($273 million), prepared food ($111 million), and processed vegetables ($110
million).

To give one more product that demonstrates theory of comparative advantage are computers. Primarily,
Philippines exports computers to United States. Refer to the table below:

Medical Apparatus Computers

Philippines 2 10
United States 20 5
The table above demonstrates the theory of comparative advantage. Consider two countries
(Philippines and United States) that use labor as an input to produce two goods: wine and cloth.

 In Philippines, laborers can produce either 2 medical apparatus or 10 computers.

 In the US, laborers can produce either 20 medical apparatus or 5 computers.

Furthermore, to explain more what’s in the table, to see the comparative advantage, what country has
the lower opportunity cost.

 Philippines:
Opportunity cost of 1 medical apparatus = 5 computers
Opportunity cost of 1 computer = 1/5 medical apparatus
 United States:
Opportunity cost of 1 medical apparatus = ¼ computer
Opportunity cost of 1 computer = 4 medical apparatus

When comparing the opportunity cost of 1 medical apparatus for both Philippines and the United
States, we can see that the opportunity cost of computer is lower in the United States. Therefore, the
United States enjoys a comparative advantage in the production of medical apparatus. Additionally,
when comparing the opportunity cost of 1 computer for Philippines and the United States, we can see
that the opportunity cost of computer is lower in France. Therefore, Philippines enjoys a comparative
advantage in the production of computers. Thus, in demonstrating the theory of comparative
advantage, we can conclude that Philippines exports computers to U.S for a lower opportunity cost and
imports medical apparatus from U.S for a low opportunity cost also.

In summary, The key to understanding comparative advantage is a solid grasp of opportunity cost. Put
simply, an opportunity cost is a potential benefit that someone loses out on when selecting a particular
option over another. In the case of comparative advantage, the opportunity cost (that is to say, the
potential benefit which has been forfeited) for one company is lower than that of another. The company
with the lower opportunity cost, and thus the smallest potential benefit which was lost, holds this type
of advantage. The theory of comparative advantage introduces opportunity cost as a factor for analysis
in choosing between different options for production. It also suggests that countries will engage in trade
with one another, exporting the goods that they have a relative advantage in.