New Era University.

College of Accountancy
SCHOOL OF MANAGEMENT
No.9 Central Avenue, New Era, Quezon City 1107 Philippines
Tel. Nos. (632) 8981-4227/Fax: (632) 8981-4240
E mail add: accountancy@neu.edu.ph

Assignment Nos. 3/ Interdependence and Gains from Trades and the Supply,
demand and government policies

Submitted by: Ciara Castañeto Submitted to: Prof. Aj Orencia

Date Submitted
April 15, 2021

Section Schedule
Wednesday 4:00-5:30PM
1. It is a principle of economics that society faces trade-offs and one of these trade-offs
is between the goals of equity and efficiency. Explain the terms equity and efficiency
and discuss which of the two you think is the more important? Why might government
policies aimed at achieving the goal you think is the more important lead to a reduction
in the other goal?
When there is a conflict between maximizing economic efficiency and maximizing
society's equity (or fairness) in some way, it is called an equity-efficiency tradeoff. If
such a trade-off exists, economists or public policymakers may choose to forego some
economic efficiency in order to achieve a more just or equitable society. An equity
efficiency tradeoff results when maximizing the efficiency of an economy leads to a
reduction in its equity—as in how equitably its wealth or income is distributed. Many
economic models have as a primary normative target the production of goods and
services that have the greatest value at the lowest cost. This can refer to an individual
customer or a company, but it most commonly refers to an economy's overall
performance in meeting the wants and needs of its citizens. Economists interpret and
seek to quantify economic utility in a variety of ways, but the most common methods
are all utilitarian in nature. In this way, an economy is efficient because it maximizes
the overall utility of its members. The definition of utility as a quantity that can be
maximized and averaged across all members of a society is a way for economics to
make normative objectives solvable, or at least approachable, using constructive,
statistical models. The field of economics most concerned with measuring and
optimizing social value is welfare economics.
When optimizing the market's economic productivity leads to less egalitarian
wealth distribution, the equity-production tradeoff happens. There is a tradeoff
between consumer productivity and market equity in welfare economics. Efficiency
indicates that society is making the most out of its limited resources. Equality ensures
that those rewards are spread equally among the members of society... There is a
way to properly reallocate finite capital (in this case, employees) in order to meet the
aim of increasing donations.
2. Economists generally believe that trade is good for society. Do you think trade is
good for society? Give your views on the matter, making sure to support your answer
with a carefully thought out explanation.
Trade raises inflation and reduces global prices, which rewards consumers by
increasing their buying power and resulting in a growth in market surplus. Domestic
monopolies are often broken down by trade, since more competitive international
businesses compete with them. Countries trade with one another because they lack the
means or ability to meet their own needs and desires on their own. Countries may create
a surplus and exchange it for the commodities they need by cultivating and using their
domestic scarce resources. Clear evidence of trading over long distances dates back at
least 9,000 years, though long distance trade probably goes back much further to the
domestication of pack animals and the invention of ships. Today, international trade is at
the heart of the global economy and is responsible for much of the development and
prosperity of the modern industrialized world. Goods and services are likely to be
imported from abroad for several reasons. Imports may be cheaper, or of better quality.
They can also be more convenient to obtain or actually more attractive than products
manufactured locally. In certain cases, there are no local alternatives, so importing is
needed.

3. Apply the theory of comparative advantage to everyday life and national policy.

Comparative advantage is when a country produces a good or service for a lower

opportunity cost than other countries. Opportunity cost measures a trade-off. The trade-
off is worth it for a country with a competitive advantage. The advantages of purchasing
its product or service outweigh the drawbacks. It's possible that the country isn't the best
at producing something. The theory of competitive advantage was developed by
economist David Ricardo in the eighteenth century. He said that a country's economic
growth is boosted the most by concentrating on the sector on which it has the greatest
competitive advantage. England, for example, was able to produce inexpensive fabrics.
Portugal had ideal conditions for producing low-cost wine. England would stop producing
wine, and Portugal would stop making fabric, according to Ricardo. He was absolutely
right. Trading England's fabric for Portugal's wine, and vice versa, resulted in a greater
profit for England. Since England lacked the climate, making all of the wine it needed
would have been prohibitively expensive. Portugal lacked the production capability to
produce low-cost fabric. As a result, by trading what they made most effectively, they all
gained.

References:
Kenton, W. (n.d.). Equity-Efficiency Tradeoff Definition. Retrieved from
Investopedia website:
https://www.investopedia.com/terms/e/equityefficiencytradeoff.asp#:~:tex
t=An%20equity%2Defficiency%20tradeoff%20results
Env-Econ 101: Is efficiency versus equity a fair fight? (n.d.). Retrieved from

Environmental Economics website: https://www.env-econ.net/2009/04/envecon-

101-equity-and-efficiency.html

Economics Online. (2019). Why do countries trade? | Economics Online.

Retrieved from Economicsonline.co.uk website:
https://www.economicsonline.co.uk/Global_economics/Why_do_countries_trade.
html