Unit 4 Individual Project Essay Example | Topics and Well Written Essays - 500 words - 2

Unit 4 Individual Project - Essay Example on creates the incentive to trade the products you are good at producing in exporting transitions and the goods and services a country is not efficient at producing are imported into an economy. The end result of the trade activity among nation is a better standard of living of all the participating nations in international trade (Nobelprice, 2008). The Ricardian theory was derived from the principles of the Heckscher-Ohlin theory as far as its objectives. The theory is better than Heckscher-Ohlin because it adds the element of labor theory of value into the demand and supply approach used in the Heckscher-Ohlin economic model (Gontijo, 2000). Another major difference is the inclusion of the concept of competitive advantage into the Ricardian theory. Trade activity among trade partners positively affects the distribution of income of the countries involved in the transactions. The Heckscher-Ohlin model demonstrates the positive outcome of trade which increases the distribution of income the resident of nations. The way distribution of income is improved through trade is due to the appreciation of value as direct consequence of trade transactions. For example Argentina is able to produce apples at $1 a pound, and sells them in the open market at $1.75 per pound. In Brazil it cost $2 to produce the same apples, then Brazil has no incentive to produce apples since it can purchase them at $1.75 from Argentina. In the transaction Brazil acquired value in the form of $0.25 which is distributed in the economy of the nation and which positively affects the standard of living of all Brazilians. Factor endowment theory equalizes the relative costs between nations as well as the prices of factors of production (Csus). The principle assumption of the theory is that price equalization is derived from international activity trade among nations. The applicability of endowment theory is greatly enhanced by Leontief theory. The Leontief theory says that a country specialized in