International Trade Simulation and Rep
International Trade Simulation and Report
International trade is a common denominator in today’s economy. Various countries around the world participate in importing and exporting the goods and services demanded by their citizens; requiring an abundant level of careful considerations, restrictions, limitations, and government policy. The following is an a brief discussion of the advantages and limitations of international trade, detailed analysis of comparative and absolute advantage, foreign exchange rates, and the World Trade Organization. For further insight and review, the team’s concept summaries, Trade Simulation evaluation, and ...view middle of the document...
Trade relations slow down until both countries involved decide that the tariff has not been beneficial and the tariffs are removed; thus opening up free trade.
Simulation Key Points
International trade has many benefits and key points that must be taken into consideration: gains and losses, tariffs, trade restrictions, and free trade. Gains and losses can be summarized by how much the economy will gain to offset how much it will lose in trade. If the gains outweigh the losses, trade will be beneficial. The overall goal of trade is to raise the Gross Domestic Product (GDP) and sustain a healthy economy.
The second key point involves tariffs; taxes imposed on a country’s imports. Tariffs are used to raise the cost of an import in order to give a domestic supplier an opportunity to be competitive in the same market. If import goods cost less than domestic goods, domestic companies will suffer causing a loss of jobs and eventually the business may be forced to close. Tariffs can provide opportunity for new or lesser businesses and assist in repairing a declining economy.
Trade restrictions are the next consideration. When a country puts a trade restriction on the amount of imports, the exporter, in essence, is being instructed to only take a certain number of any given product during a given period. These restrictions force the exporter to produce less of the product which in turn hurts their country’s economy. Trade restrictions are normally the beginning steps towards a declining trade agreement; imposed when a country is in the early stages of a recession. The restrictions are a means of allowing domestic suppliers the opportunity to increase production and increase profits.
Finally, free trade provides an open market to import and export freely. The best scenario for any country to be in, free trade allows countries the freedom to produce specialized products and export them to maximize sales. Although highly beneficial, free trade suppliers are at the mercy of the global market. The world price is the governing price so suppliers have to ensure that their production costs are minimized.
Absolute and Comparative Advantage
In the realm of international trade, certain advantages apply: absolute and comparative. In economics, an absolute advantage refers to the ability that a country or people within that country have to produce a large amount of goods or services with minimal resources required to succeed. The comparative advantage in economics consists of the same standards of production as the absolute advantage except that it exists with only one particular good or service at a lower opportunity cost than another person or location: opportunity cost referring to the benefits that were received by taking an alternative action (Mankiw, 2007). Along with the influences of different types of economic advantages within international trade, foreign exchange rates also affect the economy and some inductions will follow.