Econ 212 Principles of Economic
What is International Trade? What are the limitations and advantages of free trade? We will answer these questions as well as exploring comparative and absolute advantage, and the influences affecting foreign exchange rates. We will also explain the purpose of the World Trade Organization (WTO), and give an example of a current trade topic.
International Trade is the exchanging of goods and services between two separate nations. If a nation did not participate in free trade, it would be limited to only the goods and services it could produce. By participating in free trade, a nation opens itself to an increased variety of goods and services, ...view middle of the document...
In order to maintain a balance between imports and exports, sometimes nations will impose import quotas or tariffs. An import quota limits the quantity of a good or service that can be imported for a specific amount of time. A tariff is a tax imposed on the good or service that is being imported. Although there are some disadvantages of free trade (inhibits domestic jobs, unfair competition, jeopardy of national security, etc.), the gains from free trade far out way the losses.
Comparative & Absolute Advantage
There are many different advantages that can be gained when working in the different economic markets. The most important advantages are known as comparative advantage and the absolute advantage. Absolute advantage is the ability of a particular person or country to produce a good or service with less resources than another country or person. Comparative advantage is the ability of a person or a country to produce a particular good at a lower opportunity cost than another person or country.
Influencing Foreign Exchange Rates
Foreign Trade is one of the things that have a strong hold on the way the economy works globally. The one thing that ties the entire world together is the exchange rate by which our currencies are traded. There are many different things that influence the way the exchange rate is modeled. The factors that make the exchange rate what it is are: domestic economic and political conditions, Speculation over future currency values, and Central bank intervention. Speculators buy or sell currency when they think that they have a better chance of making a profit. This affects the amount of a certain currency that is on the market at that point in time. Central banks may buy or sell currencies to influence the value of their countries currency. This exactly what the US government has done; selling American bonds to other countries hoping that it will boost the value of the dollar abroad. When dealing with the domestic economic and political conditions; it is important to note that the deteriorating economic conditions and inflation have an adverse affect on the foreign exchange rate.
International Trade Debate
International trade is the exchange of goods and services between two or more countries. There are many positives to international trade. It allows for goods or different types of services that are likely unavailable to in a particular area to be consumed; which adds culture and variety. Importing certain raw materials also allows a country to produce products that normally would be impossible; thus boosting this countryâ€™s economy. Services are also traded, such as tourism, consulting, and transportation (investopedia.com). Along with the positives come issues that some believe have a negative effect on our economy which leads to Protectionism.
International trade is something that the government regulates with a protectionist approach. This approach involves the use of tariffs,...