Every economy can count on two things; there will always be supply and there will always be demand. For some countries, supply cannot keep up with the demands for the economy and when that happens, international trade is sometimes an only option. As with anything in life, there are advantages and disadvantages to international trade. One of the major advantages to international trade is that it allows countries with a surplus of supply to trade with another country that may have a shortage of that same supply. Another advantage is that if a country is in short supply of a particular product or service that country can import from other countries. One of the major disadvantages to international trade is the amount of surplus countries are exporting to other countries. For some countries, this dumping of surplus causes a loss in the market.
In this international trade simulation, I have been assigned the role of Chief Trade Advisor to the President of Rodamia. In this position, I am tasked with developing and coordinating international trade, investment policies, and lead the negotiations with other countries surrounding Rodamia. Rodamia is considerably larger than its surrounding countries (Alfazia, Uthania, and Suntize) and is considering trading with them to provide a more diverse and quality product to the country’s people. In this paper we are going to discuss some of the advantages and limitations of international trade encountered in “Rodamia and its neighbors” trade simulation as well as absolute and comparative advantages and the influences affecting foreign exchange rates.
Before we get into the discussion of the exercise, we first need to understand what absolute and comparative advantages are. A comparative advantage is to have the ability to produce a good or service at a lower price than the competition while maintaining similar qualities. Comparative advantages calculate opportunity costs involved with the overall production of the good or service. The absolute advantage refers to the ability to produce a good or service at a higher quantity than the competition, while at the same time utilizing the same amount of resources. This can also be stated as the ability to produce the same amount of goods or services using less input than the competition.
In the “Rodamia and its neighbors” trade simulation, I came across a few advantages and disadvantages of international trade. First let’s talk about the simulation itself. The first step of the trade simulation involved deciding whether to import or export corn, cheese, DVD players, and Watches. I decided it was best to import corn and watches and export DVD players and cheese. This was an easy simulation because all I had to do was decide which items we had a comparative advantage with and which countries offered the best products at a lower opportunity cost. Even though Rodamia does not have the absolute advantage on corn or cheese, I was able to help maximize the countries...