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International Trade Simulation and Report

Essay by   •  October 23, 2012  •  Research Paper  •  1,559 Words (7 Pages)  •  1,680 Views

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International Trade Simulation and Report

International trade means an exchange of goods and services with other countries, and it is commonly found in almost every country worldwide. Some countries have resources that are not available in other countries and in order to meet consumer needs countries trade. Each country wants to optimize its wealth by taking advantage the resources they have as much as possible (Simulation: Applying International Trade Concepts, 2012). International trade does require careful considerations, restrictions, limitations, and government policy. The following is a discussion of the advantages and limitations of international trade, an analysis of comparative and absolute advantage, foreign exchange rates, and the World Trade Organization. The paper will also discuss the team's discussion surrounding international trade, the results for the assessment, and the team's evaluation of the effects of government policy on economic behavior.

Advantage and Limitation of International Trade

Taking time and studying the effects of international trade is important. An important factor to consider is that international trade makes room for competition and by giving consumers choices. Another factors to consider is that trading lets countries specialize in producing goods best suited for them and exporting them in exchange for goods the country has a hard time producing. All in all, international trade offers countries a chance to succeed and gives its consumers different choices.

However, restrictions and limitations do exist that would prevent trade from benefiting parties involved. Limitations that would halt international trade would be tariffs, quotas, and regulations. Tariffs, also known as taxes, limit imports so that domestic suppliers for a particular good can have a chance to compete. When a country enforces tariffs, the exporting countries feel threatened and retaliate by setting a tariff on imports from that country. This slows down international trade and businesses, consumers and countries suffer due to tariffs.

Four Key Points

Many key points were emphasized in the simulation; however, for this paper we will be discussing gains and losses, tariffs imposed on goods, openness to free trade and trade restrictions. The bottom line is that every country that participates in trade wants to maintain a healthy economy.

Countries that participate in international trading can either have a trade surplus (gain) or trade deficit (loss). Many countries want to have a trade surplus; therefore they will try to ensure that they keep their losses at a minimum and have the most possible gains.

A tariff is tax on imports, and imposing tariffs on the imports of products that were traded freely could pose as a difficult decision for any country's government. However, there needs to be restrictions to ensure that the welfare of all countries involved is protected. Yet, some countries still have opposition against tariffs placed on their goods which could adversely affect exports.

Openness to free trade by some countries lowers trade barriers, increases volume of trade, and it is bargaining power. Free trade basically means that the government does not discriminate against imports nor does it interfere with exports by applying tariffs or quotas.

Trade restrictions are relevant only to goods coming from the exporting country by the country importing them. Restrictions may imply due to failing economies between one or both countries. Either way, one country may see restriction and think nothing about it while another country may think it was done to protect their people from harmful or dangerous products.

Absolute and Comparative Advantage

The principal of absolute advantage refers to the ability of party has to produce more good or service than competitors though using the same amount of resources. It is clarified by comparison of labor productivities. An example of absolute advantage, is company X can produce 20 items and hour with 4 employees and company Y can produce 25 items an hour with 4 employees. Company Y has the absolute advantage of company X because it can produce twice as much of items with the same amount of employees as Company X.

Whereas comparative advantage is the principal law that refers to the ability of party to produce a particular good or services at a lower marginal and opportunity cost over another. If a country is effective in production (absolute advantage) the country that has comparative advantage will trump the other's country production however, both countries will continue to gain by trading with one another as long as they have distinctive and comparative capabilities.

Influences Affecting Foreign Exchange Rates

What makes one countries currency strong is the lack of debt within that country. Each country's currency is unique and easy to differentiate which makes it easy in trading for different goods. Many factors influence foreign currencies. One influential

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