Applying International Trade Concepts Paper

1362 words - 5 pages

Applying International Trade Concepts PapernameECO/372: MacroeconomicsdateinstructorApplying International Trade Concepts PaperIn the University of Phoenix simulation, Applying International Trade Concepts, a situation is presented concerning international trade - "the theory of comparative advantage, the impact of tariffs, quotas, and dumping, and the rationale behind free trade agreements (FTA)" (University of Phoenix, 2010, p. 19). Throughout the simulation scenarios are presented and choices must be made to determine "what products to produce within the country and what products to import based on the Production Possibility Frontier (PPF) (University of Phoenix, 2003, para. 1) as well as when to impose trade restrictions like tariffs and quotas, and when to negotiate trade agreements.Advantages and LimitationsAdvantagesOne of the advantages of international trade is imported products that are produced more efficiently in other countries will give consumers more choice in terms of price and quality. Another advantage is increased demand leads to an increase in production, achievement of economies of scale, and therefore, more competitive production. As domestic producers expand their markets to other countries, the initial country gets new avenues for investment, which leads to more employment in the country where investment is taking place, and better returns on capital for the investing county.LimitationsInternational trade has limitations as well. Trade barriers for countries that do not participate in free trade agreements are high relative to the countries that participate in free trade agreements, even though the non-participating country may be more competitive in the production of a product.Effects of International TradeThe effects of international trade in the United States are varied. The amount of goods that are available to the United States has increased, while the price of goods has decreased. U.S. consumers have more choices for products and can pay lower prices, which has improved the standard of living for many consumers. International trade has allowed businesses in the United States to expand into new markets. The expansions have increased competition, demand, employment in some sectors, and economies of scale, while reducing monopolistic pricing and inefficiency (InfoUSA, 2003). Although international trade may have some positive effects on the economy, negative effects also have taken place. Employment in some sectors has decreased because of closures of businesses that cannot compete with the imports.Effects on Exchange RatesAccording to Colander (2008), monetary and fiscal policies have affect exchange rates in three ways: through its effect on (a) the interest rate, (b) income, and (c) price levels and inflation.Interest RateMonetary Policy. Through expansionary monetary policy U.S. interest rates are...

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