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International Trades Simulation Analysis

Introduction

International trade is the exchanging of goods and services among different countries. The stimulation will help identify the reasons of international trade and know the countries that are the best for me to trade with. In this simulation i will consider a very large country in terms of level of economic development in comparison to its neighboring countries. It optimizes its wealth by trading one of the products it has e.g. cotton.

What are the advantages and limitations of International Trade identified in the simulation? ( Andrew Rose 2005)

Advantages

In the present world no country is self supporter because it cannot produce all the commodities within the country. The following are the advantages of international trade identified in the simulation.

A country is able to import the commodities which it cannot produce within the country.
Alleviating the problem of famine whereby a country is faced with the threats of famine and other shortages, international trade will facilitate movement of food and other supplies from areas of surplus.
It facilitates more efficient utilization of a countrys resources. This is because it provides a wide market for a countrys output, thus paving the way for the realization of greater economics of scale.
It provides the means of improving peoples standard of living. this arises from the fact that consumers are able to enjoy a wide choice of goods and services. In addition the quality of such goods and services is likely to be higher due to competition.
It facilitates the technological to the less developed countries which therefore accelerates their development.
It provides an opportunity for a country to sell its surplus produce which leads to peace and understanding
It expands market for countrys product.Goods are produced at large scale and advantages increasing returns, internal and external economics are achieved. It also helps in the better usage of resources of the country.

Limitations

Foreign exchange control

It restricts the amount of imports by limiting the amount of foreign exchange allocated for the importation of commodities.

Tariffs

These are taxes imposed on imports or exports. If a tariff is imposed on a commodity its price is likely to rise. The effect of such an increase in price will be to lower the demand for the product hence an import tariff will normally lead to a fall in the volume of imports, while export tariffs would similarly reduce exports. The overall effect of such duties is a reduction in international trade.

Quotas

This refer to physical restrictions.An import quota refers to the maximum amount of commodity that a country is allowed or allows its citizens to import, similarly an export is the maximum amount of commodity that is allowed to be exported out of the country.

Devaluation

It refers to the process by which a government lowers the value of its domestic currency relative to other foreign currencies. The effect of such devaluation is to make imports more expensive while exports become cheaper. This then tends to lower the demand for imports, hence restricting trade.

Administrative

Another method used by government to discourage free movement of commodities is the establishment of complicated or cumbersome procedures to be followed when importing or exporting. This could involve filling of forms and getting clearance from different departments; such invisible barriers discourage trade and are an effect of a form of protectionism.

Moral suasion

In the case of moral suasion, the government appeals to exporters or importers to restrict the importation or exportation of certain products. Such appeals can be based on the citizens sense of patriotism.. (Edward G. Hinkelman, Karla C. Shippey 2002)

What are the effects on international trade on the U.S. economy?

Unemployment level has increased
The confidence levels of consumers has decreased
Both corporative incomes and corporative investment have been reduced.
Trade has been harmful to both the environment and the international labor standards.

Explain how changes in fiscal and monetary policies affect exchange rate.

They can increase tested benefits for low income earners
They reduce the rates of corporation tax
They offer business with investment allowances
There is a negative output if they are used to achieve an increase in national income actual GDP lies below potential GDP.
This can lead to unstable exchange rate

List four key points from the reading assignments that were emphasized in this simulation.

Division of the gains from trade
Aspects of trade in macroeconomic
Many trade restrictions
The principle of comparative advantage (Kyle Bagwell, Robert W. Staiger 2002)

How can you apply what you learned from the simulation to your workplace?

I can apply this in my work place in the sense that simulation provides a good example of international trade. The four key points named above can perfectly apply to my work place since we are dealing with commodities that a high productivity and their superiority is the greatest. The international trade simulation will also be applied at my work place in the sense we will be able to identify the best countries to trade with, identify those countries with stable exchange rates and stable and high economic growth.

What were the summary concept results for the assignment?

In conclusion international trade simulation has capability to maximize a countrys capacity to produce and gain goods. The international trade is believed to allow inefficiencies that leave developing nations compromised. International trade is important for every country hence nations are capable of producing quality products. Since the factors of production like land, capital, entrepreneurship and labor are not the same in the neighboring states; each country is trying to utilizing its resources so that it can optimize its wealth. These concepts can be seen around the world and their similarities are seen among different nations. Countries like Rodamia are part of this circle. The simulation outlines the Rodamia government and its realization to an upcoming market and driven by their own economy they start to initiate an effective trade strategy that will provide the country with a competitive advantage compared to their neighboring countries.

References

Andrew Rose (2005) Business & Economics.

Kyle Bagwell, Robert W. Staiger (2002) business & economics.

Edward G. Hinkelman, Karla C. Shippey (2002) -Business & Economics.

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