International Trade Concepts Simulation

Essay by IvySCSUniversity, Bachelor's May 2006

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The purpose of this paper is to summarize the International Trade Simulation, explain the basic concept of International Trade, emphasize the four key points from the reading assignments in the simulation, and apply these concepts to my workplace.

Simulation Summary

In the International Trade simulation, you are the Trade Representative of a small country called Rodamia. You are introduced to international trade--the theory of comparative advantage and the impact of tariffs, quotas, and dumping on international trade (Applying International Trade Concepts, 2003). In the first segment, it is your job to evaluate what products to produce within the country and what 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 incentives to export were determined from the Trade Commission Report and the Production Possibility Frontier that both showed the opportunity costs for each country's production.

In the second segment, you make decisions pertaining to tariffs and quotas. Because the dumping margin could be an ongoing anomaly, Rodamia should impose an anti-dumping tariff 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 revenue to offset any loss in consumer surplus. No trade restrictions should be imposed on imported corn. The Trade Commission weighed the magnitude of damage a tariff would cause and it was determined that imposing a tariff would increase the price of corn (Applying International Trade Concepts, 2003). This would cause a loss in consumer surplus, which is deadweight to the economy. Last of all, the simulation also introduces free trade agreements. Free Trade Agreements should be made with both Uthania and Alfazia. The country profiles showed restrictions in trade that were also...