In leaping into international trade a state would ideally desire to maximise net incomes and maximise the impact of chance costs associated with importation and exporting goods and services. The ideal state of affairs for a state involved in international trade would be the exportation of specialised goods that can be expeditiously produced and the importing of goods that are produced elsewhere that are produced under similar conditions. Making so creates moderately priced goods that are desirable to other states. The contents of the paper will discourse the advantages and restrictions of international trade as identified in the simulation and will indentify four cardinal points from the reading assignments that were emphasized in the simulation. In add-on there will be a treatment on the application of what was learned in the simulation to a familiar organisation. Last there will be a sum-up of consequences from this appraisal.
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 state does non hold an advantage over means that the state will be able to optimise the production of the merchandises that they do hold advantage over. In this type of state of affairs a state exports an expeditiously made. high quality merchandise. For illustration in the first scenario Rodamia the best merchandises for export were cheese and DVD participants. Due certain picks along with handiness of engineering and resources those trade goods were the best picks to bring forth and later export.
Importing maize from Uthania was another good pick because maize is produced at a lower chance cost which passes that nest eggs along to Rodamia. In add-on importing maize allows Rodamia to set a big sum of its resources into bring forthing cheese. Suntize has a comparative advantage in electronics so importing tickers from them was a good determination as good. In trading with Suntize and Uthania this made Rodamia in line with chance costs of production in each state. The restriction is that comparative advantage does non remain the same because complete clip as engineering develops and skill degree adapts the advantage alterations every bit good.
Scenario 2 & A ; 3Another advantage is that in order to stabilise international conditions states can make up one’s mind to or non to enforce duties to equalise the market. In the 2nd scenario Suntize exported tickers to Rodamia at a lower monetary value than the tickers Suntize was selling domestically. Puting a different monetary value otherwise called dumping. causes the international market to go unstable. Rodamia decided to put a duty so that the monetary value imported can compare to the market value of the tickers. The dumping border was calculated at 25 % which would raise a duty of $ 40 per unit or 25 % of the export monetary value. The duty besides proves to assist protect the domestic manufacturers. This is so because the figure of imports starts to diminish and domestic production Numberss raise because of it.
In Rodamia the duties caused imports from Suntize to drop to 2. 00 million units and increased domestic production to 6. 00 million units. One of the restrictions is that enforcing duties means that consumers will no longer be able to harvest the benefits of a cheaper imported merchandise. High duties can intend that consumers may hold to pay for higher priced domestically made goods. In scenario three non enforcing a duty proved to be an advantage because non enforcing a duty on Uthania and Suntize caused them non to enforce duties on the cheese that is imported from Rodamia. A duty would besides harm goods manufacturers in Uthania and Suntize. The restrictions are that in Rodamia the maize industry is in its beginnings and enforcing a duty would protect the domestic industry from cheaper produced maize. A duty would further the potency for Rodamia to be a big maize manufacturer.
Scenario 4Free trade improves domestic market competition. What this means for the consumer is better quality goods and for manufacturers an expanded market in which to export their goods. States involved in free trade benefit from all the other states involved as one time a state determines their competitory advantage other states can harvest the benefits of holding quality goods. Rodamia has decided to negociate free trade understandings with both Uthania and Suntize. In making so free trade dialogue lowers trade barriers which allow states to research other markets. This can supply consumers with a larger assortment of merchandises. In add-on opening the state to other markets increase production leads to an addition competition and consumers benefit from this. The restrictions are that free trade dialogues do non impact states that are non a portion of the FTA. Countries outside of the FTA will hold high trade barriers.
Four Key PointsFour key points that were emphasized in the readings and in the simulation were comparative advantage. consumer excess. chance costs. and trade limitations. Comparative advantage is when a state possesses the engineering and resources to bring forth at good at a lower cost compared to another good and another states production. Since Rodamia could bring forth cheese expeditiously their comparative advantage would put in cheese production. The comparative advantages in the simulation determined Rodamia’s exports and imports from the adjacent states. Consumer excess is when a state can bring forth goods at a lower monetary value than another state. The state of Suntize may hold had a consumer excess with its production of electronics. The determination to take Suntize to import tickers was based upon the fact that Suntize had an advantage in bring forthing electronic goods. Opportunity cost is the benefit foregone by bring forthing a certain good ( Colander. 2004 ) .
Opportunity costs were weighed to a great extent in Rodamia taking goods to export. Rodamia was encouraged to export the trade good that had the lowest chance cost which turned out to be cheese. Giving off 2000 dozenss of maize cut cheese production in half where as if no maize was exported and imported alternatively. outputs 8 million lbs of cheese. The last cardinal point involves trade limitations. Some types of trade limitations include duties. quotas. trade stoppage. and licences. Duties were imposed upon Suntize for making an imbalanced market. The duty helped to equalise the imported monetary value with the market value. Not enforcing trade limitations can besides assist non to harm foreign manufacturers of goods and in return they may non make up one’s mind to put duties on imports.
Application of SimulationAs a frequent traveller to foreign Asiatic states I now know why some states produce the goods they produce. For illustration Jasmine rice is widely known as a Thai trade good but their figure one export is computing machines and computing machine parts. This is so because Thailand has a comparative advantage in bring forthing those goods and exporting them. Because of the lowered monetary value of production Thailand will be able to export units at a sensible monetary value doing those merchandises desirable to states that are in demand of them. In add-on I besides see the major disadvantages of being a state that does non hold any kind of comparative advantage. This would do it hard to merchandise with other states that will look for merchandises that can be produced expeditiously and less dearly-won.
Summary of Results
Scenario 1: Exports: Cheese and DVDsImports: Corn/UthaniaWatches/SuntizeScenario 2: Degree of Tariff ( % /unit ) : 40Imports from Suntize ( million units ) : 2. 00Domestic Product ( million units ) : 6. 00Scenario 3: Duty degree: 0 % Imports from Uthania & A ; Alfazia ( $ in million ) : 37. 29Exports from Uthania ( $ in million ) : 32. 48Exports to Alfazia ( $ in 1000000s ) : 8. 86Rodamia’s Balance of Trade ( $ in 1000000s ) : 4. 04Scenario 4Weather to Negotiate FTA’s: YesCountry to Negotiate FTA’s with: Alfazia and Uthania
Decision
In drumhead international trade does non come without issues of making optimum exports and importing the most cost efficient goods. International trade seems to spread out the assortment of goods that consumers want and for a state and its manufacturer it seeks out new consumers and markets. The contents of this paper has discussed the advantages and restrictions of international trade as identified in the simulation and indentified four key points from the reading assignments that were emphasized in the simulation. In add-on there was a treatment on the application of what was learned in the simulation to a familiar organisation. Last there was a sum-up of consequences from this appraisal.
Mentions:
Colander. D. C. ( 2004 ) . Economicss ( 5th ed. ) . Burr Ridge. Illinois: Irwin/McGraw-HillUniversity of Phoenix. ( 2007 ) . Using International Trade Concepts. Retrieved on October18. 2007 from. University of Phoenix. rEesource. Simulation. ECO360- Economics for Business I Web site.