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... ... middle of paper ... ...ng products from other countries, all countries can sit on a gain. The advantage can be created by many factors including technology, efficiency, availability of product, and even natural resources. Over time the factors all change which leads countries to further negotiations. In this paper we have discussed the international trade simulation and the advantages or limitations of international trade. We also discussed comparative advantages and absolute advantages and the factors influencing the foreign exchange rates. Works Cited Applying International Trade Concepts. (2009). Retrieved July 19, 2009, from University of Phoenix: https://ecampus.phoenix.edu/secure/aapd/vendors/tata/UBAMsims/economics1/international_trade/economics1_international_trade_frame.html Mankiw, N. G. (2007). Principles of economics (4th ed.). Mason, OH: South-Western Cengage Learning.
Trade is the most common form of transferring ownership of a product. The concepts are very simple, I give you something (a good or service) and you give me something (a good or service) in return, everyone is happy. However, trade is not limited to two individuals. There are trades that happen outside national borders and we refer to that as international trading. Before a country does international trading, they do research to understand the opportunity costs and marginal costs of their production versus another countries production. Doing this we can increase profit, decrease costs and improve overall trade efficiency. Currently, there are negotiations going on between 11 countries about making a trade agreement called the Trans-Pacific
In this chapter of Naked Economics, by Charles Wheelan, he describes many aspects of trade. It begins by showing the capabilities of trade and how it affects everyone as a whole. It makes it so that everyone is better off than normal. To put it into perspective, he put the image in your head of how hard your life would be without trade, you would have to make your own clothes, find a way to get/make your own food, make your own car, etc... After showing some of the advantages to trade, he applies it to a global persona and begins to introduce his opinion on how global trade (globalization) makes us richer. One of the key explanations of this point is that trade frees up time in our busy schedule, therefore allowing us to use that freed up
Free trade comes with its share of pros and cons. It is responsible for increased economic growth, better business environments, encourages investment
These countries should consider embracing free trade in order to fully benefit in many areas for their economy. There are several pros and cons to consider regarding free trade. Free trade fully removes any hassles of taxes and other government restrictions that limit international trading opportunities. Free trade vastly improves upon the economic wellbeing of all nations involved in international trading. Since free trade also allows each nation involved to specialize and create specific commodities, free trade can run efficiently and inexpensively compared to other complicated
Academic Consortium on International Trade (2000) Letter to Presidents of Universities and Colleges. Available at: http://www.spp.umich.edu/rsie/acit/ [Accessed 1 April 2014]
While free trade has certainly changed with advances in technology and the ability to create external economies, the concept seems to be the most benign way for countries to trade with one another. Factoring in that imperfect competition and increasing returns challenge the concept of comparative advantage in modern international trade markets, the resulting introduction of government policies to regulate trade seems to result in increased tensions between countries as individual nations seek to gain advantages at the cost of others. While classical trade optimism may be somewhat naïve, the alternatives are risky and potentially harmful.
The development of the international trade patterns and the theories that try to describe these patterns are analysed in this essay. With special focus on major international trade streams in each period of time, the Classical Theory, the New Trade, and Contemporary International Trade Theories are described.
The article examines some of the influential theories in the domain of international trade including hyperglobalisation and comparative advantage. The publisher was keen to demonstrate how the theories need to be embraced since hyperglobalisation promotes investments flows from partners pursuing such trading agreements. The trading partners can still reduce their operation cost such as transportation while still navigating the complexities of hyperglobalisation. The author also endeavored to demystify the terminology of comparative advantage by issuing examples and previous concerns reported on the subject. It has been hailed that the traders often traded as per their factor endowments by concentrating on spheres of their specialty. The author also hinted to the readers that the theory of comparative advantage is a major concept since it is the first theory that economics students are briefed on. Arguments in support of the theory reveals that countries that have this level of visibility stand to benefit massively once they specialize in areas of their specialty. He purp...
All nations can get the benefits of free trade by being specialized in producing goods they have a comparative advantage and then trade them with goods produced by other nations in the world. This is evidenced by comparative advantage theory. Trade depends on many factors, country's history, institution, size and. geographical position and many more. Also, the countries put trade barriers for the exchange of their goods and services with other nations in order to protect their own company from foreign competition, or to protect consumers from undesirable products, or sometimes it may be inadvertent.
Krugman, P.R. (1987) Is free trade passé? The Journal of Economic Perspectives, 1(2), 131-144. Retrieved from http://dipeco.economia.unimib.it/Persone/Gilli/food%20for%20thinking/simple%20general%20readings%20on%20economics/Is%20Free%20Trade%20Passe.pdf
In order for international trade to work well, governments must allow the world market to determine how goods are sold, manufactured and traded for all to economically prosper. While all nations may have the capability to produce any goods or services needed by their population, it is not possible for all nations to have a comparative advantage for producing a good due to natural resources of the country or other available resources needed to produce a good or service. The example of trading among states comprising the United States is an example of how free trade works best without the interve...
There are also many consequences of adverse terms of trade internationally. High costs of debt servicing, even with a greater quantity of export are required to pay back the same amount of foreign debt. Also, falling export receipts can cause current account deficits, which could lead to increased borrowing. Adverse terms of trade reduce the country’s ability to afford much needed imports, which become more expensive. In dealing with illegal crops it may seem attractive to growers, such as cocaine in South America. The worst thing that can lead to long term depletion of resources is the incentive to export more primary products to compensate for lower export prices.
Firstly, what should be noted here is that international trade has been providing different benefits for firms as they may expand in different new markets and raise productivity by adopting different approaches. Given that nowadays marketplace is more dynamic and characterized by an interdependent economy, the volume of international trade has grown substantially in recent years, reducing the barriers to international trade. However, after experiencing the economic crisis that took its toll in 2008 many countries adopted a different approach in terms of trade barriers by introducing higher tariffs in order to protect domestic firms from foreign competition (Hill). Secondly, in order to better understand the implications of the political arguments for trade it is essential to highlight the main instruments of trade policy (See appendix 1).
The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...
International trade is an economic practice where countries can import and export goods with no concerns to government intervention which includes tariffs and import/export bans or limitations. International trade has several advantages on developing countries; who are nations with low levels of economic resources or low standard of living. Developing countries can advance their economy through strategic free trade agreements. Free trade generally improves the quality of life of poor nations. Nations can import goods that are not easily available within their borders; importing goods may be cheaper for than trying to produce consumer goods. Many developing nations do not have the production procedures available for translating raw materials into valuable goods.