International Trade Simulation And Report

2485 words - 10 pages

In International Trade, a country prefers to capitalize on profits and take full advantage of 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 merchandise that can be efficiently produced and the importation of wares that are produced under similar circumstances. This creates reasonably priced goods that are desirable to other countries. (Suranovic, 2008, ch.30-0) This paper will discuss the advantages and restrictions of international trade and will identify four key points emphasized in the reading assignments and simulation.Limitation and Advantage of International TradeInternational trade is "the exchange of capital, goods, and services across international borders or territories." (Wikipedia, n.d.) This is a simplified definition when considering the vast scale of exchange amongst the World's Economies. Exports, the goods and services sold abroad, and Imports, the goods and services bought from foreign sources, are part of a balancing act that must be monitored constantly to ensure that domestic and national economy stays healthy.Mankiw (2007) states, "a trade balance is the value of a nation's exports minus the value of its imports". Keeping a balance between imports and exports is essential for a nation's growth. The key is to find the population desires for both sides. It makes no sense to produce, export and trade electronics when the country you wish to trade with develops and produces the same products. Research will show what other nations require and will put forth a plan that will allow both sides to acquire the goods and services needed.Advantages to international trade are evident when the public desires a good that cannot be produced locally. A good example would be coffee. The climate needed to grow good coffee beans can only be found in the southern hemisphere, specifically Columbia, South America. United States citizens love and are willing to pay for coffee; therefore, trade opens between the two countries. Columbia desires technology and wishes to purchase computers. When the two countries make a trade agreement then all sides will be happy. The tough part is keeping a balance to ensure that neither America nor Columbia's economy incurs damages from the exchange.Three major factors cause limitations to International Trade: Transaction Costs, the Terms of Trade and Protectionism. Transaction costs are high due to transportation cost and simply having to deal with foreign markets. The terms set for trade, determined by the exchange rate, are limited to the boundaries of comparative advantage. Finally, Protectionism limits trade through national security requirements, increases job loss due to companies moving overseas, trade boundaries set to protect smaller, local businesses and unfair foreign competition, which includes dumping.Absolute advantage refers to a country, region, or...

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