• In the beginning, ancient societies produced goods only
for their consumption needs. However, people realized
that it was not really possible to produce all their needs.
So they started exchanging their surplus products with
those of other communities. Later on, they discovered the
benefits of product specialization.
• ―Even if you are the best lawyer and the best
typist in town, it is better to engage only in
legal practice and let a secretary do the job of
– Prof. Paul Samuelson
– the distribution of natural
resources, labour and capital
goods among countries is not
• More abundant factor is cheaper –
means cheaper cost of production and market
price serves as the basis of a profitable trade.
• Technological efficiency – a country
which has the most efficient technology can
produce goods at the lowest price, with the
best quality, and the highest quantity.
• Why do countries trade if all countries
have exactly the same economic
resources like land, labour, and capital,
and that they produce their goods and
services with the same efficiency, quality
• In the real world, the distributions of economic
resources are not the same. Some countries
have abundant natural resources while others
are deficient. The rich countries have modern
technologies while the poor countries use
primitive technologies. There are also
geographical variations among countries which
are mainly responsible for the differences of
products produced by them.
– concerned with allocation of
economic resources among
• Best products are produced and sold in a free
One fundamental principle in international
trade is that one should buy goods and
services from a country which has the lowest
price, and sell his goods and services to a
country which has the highest price. (good
for both buyers and sellers)
• Less developed countries have the
opportunities to accelerate the pace of their
They can import machines and adapt
foreign technology. They can send their
scholars and technocrats to more
progressive countries to gain more
knowledge and skills which are relevant
to the particular needs of their
• People with money can acquire
goods and services which are not
available in their countries.
• Satisfaction of consumers can be
is a politico-economic doctrine which
believed that the power and prestige of a
nation depended on its accumulation of
gold and silver.
it involved the active participation of the
state in achieving favourable
• The merchant capitalists supplied raw
wool to the homes of spinners and
weavers; collected the crude cloth and let
other workers finish the product; and
then they market the final product. In
some cases, the capitalists provided the
raw materials, tools of production and
building for the workers.
a statesman of Florence, and the intellectual
leader of the Renaissance who supported the
idea of supremacy of the state over all other
sources of power, including the church.
he was in favour of a benevolent dictator who
could achieve material prosperity for his
powerful national state in order to maintain
order and facilitate the creation and
accumulation of wealth.
wrote ―A Brief Treatise on the Causes
which can Make Gold and Silver Plentiful
in Kingdoms Where There are No Mines‖.
he maintained the superiority of industrial
products over those of agriculture as far as
exports and profits were concerned.
―England’s Treasure by Foreign Trade‖.
argued that the ordinary way to increase our
wealth and treasures is to sell more to
foreigners than we buy from them.
he further stated that such favourable trade
could be attained by encouraging exports and
at the same time by discouraging imports.
is the ideological belief in giving all people
economic freedom, and as such granting people
with more basis to control their own lives and
make their own mistakes.
it is an economic philosophy that ideally
supports and promotes individual liberty and
choice in economic matters and private
property in the means of production.
states that a country should export those
goods in which it has the greatest
advantage, and import those goods in
which it has the greatest disadvantage.
leader of the classical economists,
pointed out the defects of mercantilism,
and stressed the benefits of free trade.
He further stated that if it is cheaper to
buy a product than to produce it, then do
not produce it.
―Theory of Value‖ –
states that the value of
any product depends
on its labour cost, and
labour cost is
determined by the
number of days in
producing a certain
It takes 10 days to
make one unit of cloth
in Taiwan, and 20
days to make the same
unit of cloth in
Tanzania; then the
value of such cloth is
cheaper in Taiwan.
• birth of the factory
system of production as
a product of the
• growth of transportation
facilities like railway
• disappearance of
• emergence of specialized
market facilities such as the
presence of dealers and
• development of banking
and financial facilities led
• foreign investment which
helped the economic
development of the world
like the United States,
Canada, and Australia
gained momentum during 19th
century and was basically trade
• most of our major industries are owned
and operated by foreigners
• processing and marketing are done by the
• our education is American education
• in the economic field, is the control of the
resources of the country by its own people to
ensure its own utilization primarily for their
own interest and enjoyment.
• nation’s aspirations, desires and willingness to
improve its material and cultural conditions
through its own talents, resources, and
sustained labour, and for the benefit of the
whole community. – Claro M. Recto, former
senator of the Philippines
• ―bayan muna‖ – our country first, in thoughts,
words and deeds. – Joaquin Roces
is a tax on imports,
which is collected by
which raises the
price of the good to
also known as duties
or import duties;
usually aim first to
limit imports and
second to raise
is levied in order to save a
domestic industry that has
deteriorated to the point
where its very existence is
is one that is levied in
response to a tariff levied by
a trading partner. In the eyes
of an economist, retaliatory
tariffs make no sense
because they just start tariff
wars in which no one—least
of all the consumer—wins.
is a limit on the amount of a certain type
of good that may be imported into the
country; can be either voluntary or
include packing and shipping regulations,
harbour and airport permits, and onerous
customs procedures, all of which can have
either legitimate or purely anti-import agendas,
there is a need to protect industries
which manufacture goods and materials
for national defense and security.
The inflow of cheap foreign products
will reduce he prices of the local goods,
and ultimately wages and level of living
will also fall.
It is contended that by restricting
imports, the level of employment
organized by General
Assembly in 1946 to
trade, particularly the
aimed at improving
conditions in world
markets for the wide range
of primary products
exported by the developing
planned to eliminate tariffs, import
quotas, and other trade discriminations
among the member countries appear to
have little effects on existing trade
protection and discriminations.
corporations which maintains its
headquarters in one country but performs
production, marketing, finance, and
personal functions within many other
1. Corporate structure
of organization with
its infinite life and
as a separate entity.
3. The growth of
4. The rapid expansion
of markets in many
5. Formation of larger
market and free trade
summary of all the economic transactions
of a country with the other countries.
includes exports and
imports of goods and
(goods) copra, corn,
computer, oil, etc.
pictures, etc. -
records all transactions
pertaining to private
grants, and loans.
assets of the Central Bank in
the form o gold reserves,
reserves, and SDRs known
as international ―paper
(outflow) if it is payment or
expenditure by our residents
to other countries.
(inflow) if it is an income
can be overvalued or
price of a foreign money
relative to the local
• Ex. $1 = Php20
is a type of exchange rate regime wherein
currency's value is matched to the value
of another single currency or to a basket
of other currencies, or to another measure
of value, such as gold.
a monetary system that allows the
exchange rate to be determined by
supply and demand.
A floating exchange rate or fluctuating
exchange rate is a type of exchange rate
regime wherein a currency's value is allowed
to fluctuate according to the foreign exchange
market. A currency that uses a floating
exchange rate is known as a floating
• Ex. Belize
To know if the peso
is strong one needs to
know how it is doing
currencies over time.
This chart shows the
value of the Philippine
peso on 4/8/2011
If the Philippine peso is going up against most other
currencies then the peso is strong. If it is up against
only the dollar, then the dollar is weak.
(BoP) accounts are an accounting record
of all monetary transactions between a
country and the rest of the world. These
transactions include payments for the
country's exports and imports of goods,
services, financial capital, and financial
The BoP accounts summarize
international transactions for a specific
period, usually a year, and are prepared
in a single currency, typically the
domestic currency for the country
Sources of funds for a nation, such as
exports or the receipts of loans and
investments, are recorded as positive or
surplus items. Uses of funds, such as for
imports or to invest in foreign countries,
are recorded as negative or deficit items.