Applying International Trade Simulation Essay

1059 words - 4 pages

This assignment consists of using a simulation pertaining to international trade advantages and limitations of international trade the country of Rodamia. The simulation is assigned to familiarize one with the tools of International trade that government uses to keep the economy moving ahead. The purpose of this paper is to summarize the International Trade Simulation, explain the basic concept of International Trade, emphasize the four key points from the reading assignments in the simulation, and apply these concepts to my workplace.In the International Trade simulation, I am the Trade Representative of a small country called Rodamia. Rodamia is a large country in terms of area, population and level of economic development in comparison to its neighbors. Four percent of the country's GDP comes from agriculture; mainly corn, wheat, cotton and dairy and poultry products, 30% comes from industry and 66% from services. Decisions will have to be made for four scenarios.In the first segment, the objective is to evaluate what products to produce within the country and what products to import based on the Production Possibility Frontier (PPF). Due to comparative advantage, Rodamia should export cheese and DVD players, and import corn and watches. The reasons to export were determined from the Trade Commission Report and the Production Possibility Frontier that both showed the opportunity costs for each country's production.In the second and third segment, decisions are made pertaining to tariffs and quotas. Because the dumping margin could be an ongoing variance, Rodamia should impose an anti-dumping tariff at $40 a unit, or 25% of export price. The Trade Commission reports indicate that a tariff will lower imports and increase domestic supply. The government gains profits to offset any loss in consumer surplus. No trade restrictions should be imposed on imported corn. The Trade Commission weighed the degree of damage a tariff would cause and it was decided that imposing a tariff would increase the price of corn. This would cause a loss in consumer surplus, which is a burden to the economy.Last of all, the simulation also introduces free trade agreements. Free Trade Agreements should be made with both Uthania and Alfazia. The country profiles showed restrictions in trade that were also limiting opportunities for Rodamia. Free Trade Agreement's will increase the volume of trade and enable a flow of investment between countries.Four key points from the reading emphasized are mentioned in the simulation. First, the principle of increasing marginal opportunity cost states that in order to get more of something, one must give up ever-increasing quantities of something else. Second, the production possibility curve measures the greatest combination of outputs that can be obtained from any given number of inputs. Third, having a comparative advantage is the basis for international trade. It is the ability to be better suited to the production of one good than...

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