International Trade Simulation - Essay Example

These countries have decided to enter into international trade relations with each other. In the first round of the simulation I was exposed to deciding which imports and exports to choose and which countries to realized trade with. These decisions must be made based on comparative advantage. As an importer Rodamia should choose to import products they not good at producing. These products will cost more to produce at Rodamia than to import them from another nation. The ability of being able to lower the cost of consumer products for the local consumption of the citizens of a country is an advantage of entering into international trade activity.

There were advantages and limitations to international trade which were revealed during the simulation. An advantage that was fairly obvious is that international trade increases the wealth of a country by increasing the purchasing power of the people. If the goods and services can be purchased at a lower price by importing, the quality of life of the people improves because they can buy more goods and services with the same amount of money.. Sometimes countries are forced to impose these restrictive measures in order to protect an infant industry.

In the simulation the corn industry represented a new industry in Rodamia that needed protection. A limitation of international trade was that if a country imposes a tariff on another nation there is a possibility of a retaliation that creates a tariff on a different good or service that is imported. Comparative and absolute powers are two economic terms that were discussed in the simulation. For me comparative power means that one country has a clear advantage over another country in terms of production capability of a good or service.

For example Iraq has a comparative advantage in comparison to the US in the production of crude oil. The United States has a comparative advantage in comparison with Iraq in the production of automobiles. Another term of interest is absolute power. Absolute power refers to the negotiation power one country has over the other. In the simulation Rodamia was the country with absolute power that could negotiate the terms of any bilateral of multilateral trade agreement. In the global economy the nation that has benefited from absolute power the most in terms of international relations is the United States of America.

Two factors that give the US influence over other nations are its military and economic power. In the real world currency is a very important element of international trade. The system that facilitates international trade is currency exchange. The value of the domestic currencies of the over 200 countries around the world change in value on a daily basis. The US dollar for example may appreciate or depreciate with relation to another currency which