International Trade Simulation Assignment - Essay Example

International Trade Simulation The international trade simulation explaining the effect of comparative advantage of two countries trading together. This built using economic theory known as Heckscher-Ohlin theory emphasizes trade ruler educational game. The theory is about two countries greater gains from trading with each other sharing different resources (Fujita, Krugman, & Venables 38). Where one country has more labor and the other one having more capital that is technical and machinery.The country selected has more labor than capital.

This theory combines both comparative advantage and absolute advantage concepts. The Island has more immobile resources of natural resources and mobile resources of labor which differs (Fujita, et. al. 140). It trades its resources to gain specialized capital gains from developed country. The specialized capital acquired from developed county help the host country to gain more income and multiply it national revenue employing many people leading to a stable economy. As much as the employment rate increased the inflation curbed making individuals having higher purchasing power thus assisting in the collection of revenue by increasing income tax collection.

This effect trickles back to the common person due to return on investment between the trading partners by appropriate governance providing for social amenities achieving social welfare of the host country.The trading partner chosen due to mobility factor of capital that freely invested. Therefore, due to mobility of technology to produce the resources which the host country they had to trade for the capital gain. This is explained by Cobb-Douglas technologies theory that state that the parameters applied to the inputs must vary (Fujita, et. al. 210).

Research has found out that capital mobility undermines the free trade. The capital abundant country will gain trade from their capital intensive industries thus import such labor intensive for goods in return. Works CitedFujita M., Krugman P. R., and Venables A., The Spatial Economy: Cities, Regions and International Trade. Chicago: 2001. Print.