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International Trade Simulation: Discuss The Advantages And Limitations Of International Trade.

1385 words - 6 pages

In jumping into international trade a country would ideally want to maximize profits and maximize the impact of opportunity costs associated with importing and exporting goods and services. The ideal situation for a country involved in international trade would be the exportation of specialized goods that can be efficiently produced and the importation of goods that are produced elsewhere that are produced under similar conditions. Doing so creates reasonably priced goods that are desirable to other countries. The contents of the paper will discuss the advantages and limitations of international trade as identified in the simulation and will indentify four key points from the reading assignments that were emphasized in the simulation. In addition there will be a discussion on the application of what was learned in the simulation to a familiar organization. Lastly there will be a summary of results from this assessment.Rodamia International Trade Advantages and LimitationsOne major advantage of international trade, as pointed out in the simulation, is that by importing certain goods that a country does not have an advantage over means that the country will be able to optimize the production of the products that they do have advantage over. In this type of situation a country exports an efficiently made, high quality product. For example in the first scenario Rodamia the best products for export were cheese and DVD players. Due certain choices along with availability of technology and resources those commodities were the best choices to produce and subsequently export. Importing corn from Uthania was another good choice because corn is produced at a lower opportunity cost which passes that savings along to Rodamia. In addition importing corn allows Rodamia to put a large amount of its resources into producing cheese. Suntize has a comparative advantage in electronics so importing watches from them was a good decision as well. In trading with Suntize and Uthania this made Rodamia in line with opportunity costs of production in each country. The limitation is that comparative advantage does not stay the same because over time as technology develops and skill level adapts the advantage changes as well.Scenario 2 & 3Another advantage is that in order to stabilize international conditions countries can decide to or not to impose tariffs to equalize the market. In the second scenario Suntize exported watches to Rodamia at a lower price than the watches Suntize was selling domestically. Placing a different price otherwise called dumping, causes the international market to become unstable. Rodamia decided to place a tariff so that the price imported can equate to the market value of the watches. The dumping margin was calculated at 25% which would raise a tariff of $40 per unit or 25% of the export price. The tariff also proves to help protect the domestic producers. This is so because the number of imports starts to decrease and domestic production...

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