International Trade Simulation – Rodamia ECO/360 Economics for Business I

Essay by sholman121University, Bachelor'sA+, November 2007

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International Trade Simulation - RodamiaInternational trade is an important exponent of economics. Organizations of today compete in a high performance global economy and it is imperative that nations specialize and trade those commodities in which they have a comparative advantage. Nations which concentrate on those goods in which they have a comparative advantage will enjoy higher incomes and the ability to trade for other goods and services.

As the trade representative for the country of Rodamia, it is the responsibility of the Trade Representative office to advise the president on decisions pertaining to tariffs, quotas, and free trade agreements (FTA). In this simulation the Trade Representative office will evaluate products to produce/export and products to import based on the Production Possibility Frontier, make recommendations pertaining to tariffs and quotas, and make decisions relating to Free Trade Agreements (FTA).

In the first scenario the team is asked to determine the opportunity for trade with neighboring countries.

The first step is to measure the Production Possibility Frontier (PPF) of each country. The PFF measures the maximum combination of outputs one can get from a given number of inputs. According to the theory of comparative advantage countries should specialize in the production and export of commodities that can be produced at a lower cost than those countries with whom the country trades. This type of specialization increases the welfare of every country involved.

In the international trade simulation the decision was made, with the help of experts, to export cheese and DVD players while importing corn from Uthania and watches from Suntize. Although Rodamia is able to produce corn and watches themselves they do not enjoy an absolute advantage and other neighboring countries can produce these goods more efficiently and cost effectively, thereby, allowing Rodamia to concentrate on the production and export of...