Economics - International Trade Simulation

Essay by jhensell March 2007

download word file, 6 pages 4.3

The goal of this paper is to tie in International Trade concepts to the simulation performed on the University of Phoenix website. To do this, a brief history of international trade policy will be reviewed. Also, the Production Possibility Frontier will be discussed. In addition, comparative advantage, trade restrictions, and free trade agreements will be explored. Lastly, the concept summary results of the simulation will be explained along with how the results can be applied to my workplace.

History of International Trade

According to Douglas A. Irwin, professor of economics at Dartmouth College, the theory of international trade and commercial policy is one of the oldest branches of economic thought. Irwin states that from the ancient Greeks to the present, government officials, intellectuals, and economists have pondered the determinants of trade between countries. These same groups have discussed whether trade brings benefits or harms the nation and have tried to determine what trade policy is best for any particular country (Irwin, 2001).

Mercantilism, considered to be the first reasonably systematic body of thought devoted to international trade, emerged in seventeenth and eighteenth century Europe (Irwin, 2001). During this period, mercantilist writers argued that a key objective of trade should be to promote a favorable balance of trade (Irwin, 2001). The logic of mercantilism may have been correct however, the strategy could never work if all nations tried to follow it simultaneously as not every country can have a balance of trade surplus, and not every country can export manufactured goods and import raw materials (Irwin, 2001). In 1776, Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations and fundamentally changed economic thinking about international trade. Smith argued that economic growth depended upon specialization and the division of labor (Irwin, 2001). Smith is remembered more...