International Trade Simulation and Report
International Trade Simulation and Report
ECO-212 Principles of Economics - Robert Coates
University Of Phoenix
Faithlyn Wright, Trina Drinka, David Barrett,
Amber Kemper, Josue Garcia
July 11, 2010.
Advantage and Limitation of International Trade
International Trade is important to many countries because it allows a country to import products or resources that may be difficult to produce locally. As a result, this enhances the country’s growth and economic wealth, and also allows the country to focus on increasing the production of resources or goods that the country can then export elsewhere. For example, in the simulation, Rodamia produces both corn and cheese, but they have a comparative advantage in producing cheese. As a result, they can decrease the number of corn they produce while increasing the production of cheese. Rodamia can then import corn from a country that specializes in corn but has a high demand for one of Rodamia’s products. When a country specializes in a particular product this is known as comparative advantage. Comparative advantage in producing cheese will result in a much more favorable balance of trade for Rodamia. Although international trade provides many advantages, there are some disadvantages as well. One limitation of International Trade may occur if a country decides to sell exported products cheaper than it does to its local residents, the process known as dumping. Romadia was left with two alternatives, whether to impose tariffs, or set a quota on its import products. This will create an adverse effect because there will be a shortage and increases in the prices of the products. Price increases will lower the demand for the products. Consequently, this hinders the progress of the company’s growth.
Key Points Emphasized in Simulation In the simulation one of the factors that they were affected by and choose to look international was the supply and demand of the items, and the cost
ECO-212 Principles of Economics - Robert Coates
University Of Phoenix
Faithlyn Wright, Trina Drinka, David Barrett,
Amber Kemper, Josue Garcia
July 11, 2010.
Advantage and Limitation of International Trade
International Trade is important to many countries because it allows a country to import products or resources that may be difficult to produce locally. As a result, this enhances the country’s growth and economic wealth, and also allows the country to focus on increasing the production of resources or goods that the country can then export elsewhere. For example, in the simulation, Rodamia produces both corn and cheese, but they have a comparative advantage in producing cheese. As a result, they can decrease the number of corn they produce while increasing the production of cheese. Rodamia can then import corn from a country that specializes in corn but has a high demand for one of Rodamia’s products. When a country specializes in a particular product this is known as comparative advantage. Comparative advantage in producing cheese will result in a much more favorable balance of trade for Rodamia. Although international trade provides many advantages, there are some disadvantages as well. One limitation of International Trade may occur if a country decides to sell exported products cheaper than it does to its local residents, the process known as dumping. Romadia was left with two alternatives, whether to impose tariffs, or set a quota on its import products. This will create an adverse effect because there will be a shortage and increases in the prices of the products. Price increases will lower the demand for the products. Consequently, this hinders the progress of the company’s growth.
Key Points Emphasized in Simulation In the simulation one of the factors that they were affected by and choose to look international was the supply and demand of the items, and the cost
References: International Trade Theory and Policy, Steven M. Suranovic, Chapter 40, 7/18/06 http://internationalecon.com/Trade/Tch40/T40-4.php Economypedia, 3/18/09 http://www.econlib.org/library/Enc/bios/Smith.html World Trade Organization (2007). Understanding the WTO. Retrieved from http://www.wto.org/english/thewto_e/whatis World Trade Organization, (2007) "Trading Into the Future" (4th ed.). Geneva, Switzerland: WTO Information Division.