International Trade Sumilation

Topics: International trade, International economics, Comparative advantage Pages: 6 (1722 words) Published: December 23, 2012
Assignment: International Trade Simulation

Course: XECO/212

Author: Vindula Raghbir

Instructor: Randy Ferguson

Date: August 12th, 2012

Every country needs some sort of income, one way to get that revenue is international trade. All countries have their own wealth which they need to recognize. These can come in the form of fertile land, which can be used for growing crops in abundance, great landscape can be promoted for tourism, skilled labor to manufacture or technology, mineral on land to mine and oil to turn into gasoline. These wealth's of countries can be traded internationally. What you have others may not and would be willing to pay a good amount of money for it. Sometimes there can be more than one country providing what you are also trading, but depending on the market rate and how willing the trade is regardless your country will have a revenue. This also give the local people the opportunity to buy goods from other countries, allowing the choice of price and quality. Looking at the neighboring countries, and what they have to offer a trade on regular bases would make a sturdy income for Rodamia. Suntize has beautiful beaches so they are attracting people from outside, what they lack is in agriculture. They could use more food items to accommodate the tourist that they are having. In comparison with cost of production of corn and cheese, Rodamia can produce twice the amount of cheese to corn for the same costs. Cost is one place the country can control than why not produce more cheese and export to the neighboring countries. Absolute advantage is when one country is able to produce cheaply compared to another country, this means the costs is lower than the other country and so they have absolute advantage. So if we were to have the same amount of labor, hours spent, variable and fixed costs and compared between two countries and one of the country is able to produce more than the other than the country with the higher production amount has the absolute advantage. Comparative advantage on the other hand is when the two countries can compare the opportunity cost but not financially. What does the country has to give up to produce that goods. If one country has to give up less than the other than the first country has comparative advantage. So when comparing if one country has to give up less than the other when producing more than one type of goods, that means it would have comparative advantage. If a country has to give more to produce another then they do not have the comparative advantage as the other country. We look at the production of DVD players and watches amongst the three countries: Rodamia, Suntize and Uthania for same time frame. - Rodamia produces 2 DVD and 3 watches

- Suntize produces 2 DVD and 5 watches
- Uthania produces 1 DVD and 2 watches
We can see that Suntize has abosute advantage because they are able to produce more of both the goods compared to the other two countries. When we want to cpompare the comparative advantage, we need to see which country has to give up less to produce the other good. - Rodamia has to give up 1 watch to make 2 DVD

- Suntize has to give up 3 watch to make 2 DVD
- Uthania has to give up 1 watch to make 1 DVD
The most is given up is by Suntize and the least is by Rdamia. Even though Rodamia and Uthania give up 1 each of the watch but the production of DVD is higher for Rodamia. This means Rodamia has the comparative advantage. It gives up little to produce more of the DVD. If I was to advice the President of Rodamia I would sayincrease the production of DVD's because we have comparative advantage. The saving that we able to get can be used in other areas. There is no mention of Alfazia producing any DVD and watches, so the high production by Rodamia can be sold to Alfazia. Suntize doesn't have any corn and cheese so the production from Rodamia can be sold to them. When comparing the corn and cheese amongst Rodamia, Uthania...
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