REYMOND T APUAN

OLAU11A8
UA202000286
ACTIVITY #2

1. Differentiate between absolute and relative advantage giving a suitable example.

- An absolute advantage is when you have a thing that is, for example, better or
stronger than another specific thing. An example of this would be a video game console
with a powerful graphics card, or a soccer player who kicks the ball harder than their
opponent. Relative advantages are things that have more to do with how somebody
uses something rather than how it compares to other things. For instance, an athlete
would have an advantage over somebody who can run faster because they use their
strengths in different ways and aren't as reliant on speed as the person who relies on
speed exclusively. In this situation, there isn't one player that is better off for being fast
alone because of relative advantages from the other player's skillset.

2. Describe the basic premise of Factor Endowment theory. How is it different from the
premise of Ricardian theory?

- Factor Endowment theory, also referred to as the Atkinson-Stiglitz model, is a theory

of wealth distribution in which individuals are allocated resources according to how
much they contribute towards earning them. The premise of this model is that people
differ in their innate abilities, and that these abilities determine the amount of goods an
individual will be able to produce. Therefore, factors such as ability level and ingenuity
play a role in determining GDP.

3. Discuss the implications of Trade Theories on the present day economic scenario in
the international trade.

-For a long time, economists have been debating the merits of free trade and globalism.
The intellectual arguments for and against each school of thought are well-documented,
but many underlying issues receive less attention. The following article will explore what
might happen if we take a theoretical look at how to balance economic globalization with
protectionism under one such theory: the Heckscher-Ohlin model.

4. Is absolute advantage as the justification for international trade? Why

-Trade has been a major thing since the dawn of civilization and it has brought us
prosperity and wealth. There was a time when we lived in an isolated world, but global
trade is now becoming one of the main drivers for economic growth. This article will
examine whether absolute advantage as the justification for international trade is fair or
not.
It is hard to argue that this theory is valid after looking at just how much trade has
helped us, but more importantly, if this perspective on trading were to be used today
with modern technology then there would be many arguments against it.

5. Explain the difference between Absolute Advantage and Comparative Advantage.

How has the theory of Absolute Advantage been evolved?

-The theory of comparative advantage posits two countries which both have different
relative costs for producing two goods, but have some type of free trade agreement. In
this situation, according to the theory, each country should specialize in the production
and export on one product and import from its trading partner on the other one.