Economics International Trade Simulation Essay

1452 words - 6 pages

The goal of this paper is to tie in International Trade concepts to the simulation performed on the University of Phoenix website. To do this, a brief history of international trade policy will be reviewed. Also, the Production Possibility Frontier will be discussed. In addition, comparative advantage, trade restrictions, and free trade agreements will be explored. Lastly, the concept summary results of the simulation will be explained along with how the results can be applied to my workplace.History of International TradeAccording to Douglas A. Irwin, professor of economics at Dartmouth College, the theory of international trade and commercial policy is one of the oldest branches of economic thought. Irwin states that from the ancient Greeks to the present, government officials, intellectuals, and economists have pondered the determinants of trade between countries. These same groups have discussed whether trade brings benefits or harms the nation and have tried to determine what trade policy is best for any particular country (Irwin, 2001). Mercantilism, considered to be the first reasonably systematic body of thought devoted to international trade, emerged in seventeenth and eighteenth century Europe (Irwin, 2001). During this period, mercantilist writers argued that a key objective of trade should be to promote a favorable balance of trade (Irwin, 2001). The logic of mercantilism may have been correct however, the strategy could never work if all nations tried to follow it simultaneously as not every country can have a balance of trade surplus, and not every country can export manufactured goods and import raw materials (Irwin, 2001). In 1776, Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations and fundamentally changed economic thinking about international trade. Smith argued that economic growth depended upon specialization and the division of labor (Irwin, 2001). Smith is remembered more for his incisive analysis of trade policy where he details, not just the benefits of free trade, but also the costs of government intervention (Irwin, 2001).Production Possibility FrontierAccording to the simulation, Applying International Trade Concepts, the Production Possibility Frontier (PPF) measures the maximum combination of outputs one can get from a given number of inputs (UOP Simulation). For instance, my workplace produces a variety of power supplies for integrated products. We always want to produce the maximum amount of each good possible as they each require different components and labor times. It would be ineffective to produce only one size power supply because our customers have different configurations of integrated products. It would also be ineffective for production to attempt to make every model every day. There is a production schedule in place to maximize production output and keep a varied stock.Comparative AdvantageIn Principles of Political Economy, David Ricardo reinforced the case for free trade...

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