International Trade Concepts Simulation, Economics 372, University of Phoenix

Essay by mdgal24University, Bachelor'sA+, July 2008

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�PAGE � �PAGE �6� International Trade Concepts Simulation

International Trade Concepts Simulation

Laura Gabbard

University of Phoenix

ECO 372 Principles of Macroeconomics

Daniel M. Rowe, MBA

April 7, 2008

International Trade Concepts Simulation

This assignment consisted of using a simulation pertaining to international trade advantages and limitations of international trade for the country of Rodamia. The simulations serve to familiarize the student with the tools of international trade the government uses for the good of the economy. The first part of the simulation involves the evaluation of products to produce within Rodamia and products to import based on the Production Possibility Frontier (PPF). Due to comparative advantage, Rodamia should export cheese and DVD players, and import corn and watches. The corn and cheese trade partner is Uthania, while the DVD player and watches trading partner is Suntize. This decision is based on the Trade Commission Report and the PPF, both showing the opportunity costs for each country's production.

The second and third parts of the simulation concentrate on decisions regarding tariffs and quotas. Since the dumping margin may be an ongoing variance, Rodamia should impose an anti-dumping tariff for watches at $40 a unit, or 25% of export price. The Trade Commission reports indicate that a tariff will lower imports and increase domestic supply. The government gains profits to offset any loss in consumer surplus. Imposing a small tariff of 6% on imported corn from Ulthania and Alfazia protects Rodamia's young corn industry until it can become more competitive. The loss in consumer surplus and increased price in corn are negligible when compared to the long-term gains.

The simulation includes Free Trade Agreements, which should be made with both Uthania and Alfazia. The country profiles showed restrictions in trade that were also limiting opportunities for Rodamia. Free Trade Agreements will...