International Trade Simulation Essay Example | Topics and Well Written Essays - 1000 words

International Trade Simulation - Essay Example Say for example, a country that has fertile soil and a climate that is beneficial to agriculture can specialize in agricultural products. They can export the agricultural products and import products that are products more efficiently by other countries. By using this advantage, both countries will be able to increase their wealth by specializing products they products efficiently and export them, then import the ones they don’t produce so well. The Trade Representative Office of Rodamia would like to give the Hon. Michael Jacobs, President of Rodamia, some recommendations for the scenarios in the international trade we will encounter. Lisa Drake, Chairman of the Trade Commission, gave expert advice to formulate sound international trade policies and Walter Barnes, Deputy Trade Representative, assisted in handling negotiations with neighbouring countries. Rodamia has three neighbouring countries: Uthania, Alfazia, and Suntize. And each of them has their own resource of special ization. It is also of absolute importance to know the rationale of each recommendation, its advantages and disadvantages. Understanding Opportunity Costs and the Production Possibility Frontier In the first scenario, the opportunities for trade in Uthania, Alfazia and Suntize should be explored. In this case, we need to decide which products should be exported to which country and which to be imported to which country. ... To better understand the comparative and absolute advantages of Rodamia, the opportunity costs for each product of each country are shown in the tables below: Table 1. Opportunity cost comparison for countries producing agricultural products Corn (units: 000 tons) Cheese (units: Mn Pounds) Rodamia 1 2 Uthania 1 1 Alfazia 2 3 Table 2. Opportunity cost comparison for countries producing electronics DVD Players (units: Mn pieces) Watches (units, Mn Pieces) Rodamia 2 3 Uthania 1 2 Suntize 2 5 The opportunity cost described here is the value of what is given up. Before we set to trade, it is important to understand the Production Possibility Frontier (PPF) and the opportunity cost for each decision we take. PPF measures the maximum combination of outputs you can get from a given number of inputs, For example, the PPF of corn and cheese in Rodamia shows the maximum amounts of two goods that can be produced from the given resources and technology. In Table 1, the opportunity costs for corn and cheese were presented. If you produce no cheese, then all resources can be used to produce 4000 tons of corn. For every 1 unit of corn produced in Rodamia, 2 units of cheese are equivalent. Walter Barnes discussed Rodamia’s comparative advantage that lies in corn production since it has a lower opportunity cost compared to cheese. In the scenario of corn vs. cheese, it is highly recommended to export corn and import cheese. Now the next step is to determine which country to import cheese. We can import cheese from Uthania since the cheese production has a lower opportunity cost compared to Alfazia. Though Alfazia has an absolute advantage in producing