International Trade Simulation Analysis

International Trade Simulation
Trade conditions were analyzed in the International Trade Simulation between four countries, Rodamia being the country in which decisions are made to stop or continue trade with surrounding countries. The simulation shows a variety of situations where trade agreements are created, cutoff, and strengthened displaying different options and different outcomes to the decisions made. The simulation demonstrated how international trade increases the production of goods within a country, lowers the cost of products difficult or impossible to produce in that country, and can strengthen the relationship between countries. At the same time, it also showed how limitations can be imposed on trade causing depletion in the
products seldom produced in that country, lower profit for producers who depend on exports, and restrictions such as, tariffs and quotas. In order to make the decisions requested in the simulation one must review the situation including the interest-rate and foreign-exchange-rate. The difference between absolute and comparative advantage was also covered in the simulation explaining how these play in the decision to trade or restrict trade with other countries.
Advantage and Limitation of International Trade in the Simulation In most situations trade is beneficial to all involved whether it be to make a profit or gain the products needed at a more affordable price. International trade has many advantages which benefit every country involved and others that only affect one country positively and the others negatively, this is seen in the beginning of the simulation with the trade of corn and cheese. In the international trade simulation the four countries all have cheese and corn to trade but only a couple had the advantage of being able to supply more allowing them to profit from the trade of either corn or cheese. Along with the positives to international trade, it also has limitations that can lead to negative outcomes. A common barrier in trade is the tariff; tariffs can be imposed to limit the products being imported or exported to restrict the trade to benefit the local or global economy. In the simulation a tariff is imposed in an attempt to protect the infant industry Rodamia is trying to create. The creation of the industry would allow Rodamia to be able to produce the product at a cheaper rate and be able to trade with other countries to make a financial gain. This limitation can create friction between countries because of the decline of economy in the country without the absolute or comparative advantage.
Absolute and Comparative Advantage When a country is capable of producing a good with little or no outside inputs or faster than another country it has an absolute advantage over the other. This advantage allows that producer to supply this good faster or in a larger quantity therefore they will have a larger profit. In the simulation there is trade of watches and DVD players, if one of the four countries can make the DVD players faster because they have had advancement in their technology they would have the absolute advantage. This is because the one country can supply more DVD players therefore having more to trade, lowering the price domestically, and making a larger profit from exports. This also benefits other countries (that do not rely on the manufacturing of this good) to lower the world price of DVD players because there will be more in circulation and the production cost is low. A comparative advantage is the product of a country or company manufacturing the product they produce the best.
In the simulation corn and cheese were two products mentioned in the trade agreement, if one of the four countries had soil that created better corn crop than that country would have the comparative advantage. Having this soil means that the farmers have to fertilize their fields less, the corn grows quicker, and it tastes better making corn their main crop and main export leaving little room for them to produce cheese. But cheese is still a necessity so this country must trade some of its corn for cheese this is their opportunity cost. If there is a neighboring country that has the comparative advantage on cheese these two countries could easily trade with each other lowering the price of cheese and corn in both
countries.
Influences on Foreign Exchange Rate
Lowering the rate of corn and cheese could cut interest rates encouraging investors to move their funds into foreign investments which cause the local currency level to drop in foreign-currency exchange and lowering the price of domestic goods in relation to foreign goods.
For example, if three countries from the simulation were to produce the same good at the same quality and quantity it could reduce the foreign exchange rate even for the fourth country as well. This rate of exchange deems the value (on a global scale) of goods and therefore determines the quality and quantity of goods and services demanded. Having a way to decipher the rate of exchange allows countries to determine what and how much of it to trade internationally, this makes it simpler to figure out what a good or service is worth and to decide if it is worth trading for a particular good or service. This greatly affects the way in which the world trades goods because it gives an idea of what to trade and how much to trade of it to get the highest trade
value.
International Trade This simulation had great examples of international trade and also demonstrated the advantages and limitation of trade. It showed how countries that have an absolute or comparative advantage buy and sell to other countries balancing the distribution of resources and materials. This helps countries to get products or services they cannot manufacture themselves and also to sell their overabundance of particular goods and services. Many countries depend on others countries to trade with because most countries do not have the means to support themselves completely; this was seen in the simulation through their example of watches and DVD players and with corn and cheese. Importing goods from another country that can produce the same good with a better opportunity cost lowers the price of that good internationally and domestic producers can then spend their time producing products that have better opportunity cost for them. Under most circumstances trade benefits every party involved including the consumers by lowering prices for almost every product, so from the top of the chain to the bottom, trade can supply the beneficial parts to production.