Michael C. McGee
September 7, 2011
International Trade Simulation and Report
International trade is a dynamic, ever-changing, and progressive evolution that exists in the 21st century. Countries around the world have come to depend heavily on international trade to keep their economies robust and running smoothly. Some countries have the capability to produce a particular good or product more cost-effective and efficient than a neighboring or foreign country. This is comparative advantage, and it is the basis for international trade. Comparative advantage allows a particular country to specialize in efficiently producing a certain good to export while importing a particular product that it is not efficient at producing (Hubbard & O’Brien, 2010). The country of Rodamia has a comparative advantage in exporting cheese and importing corn from the country of Alfazia. The country of Rodamia also has a comparative advantage in exporting DVD players to and exporting watches from the country of Suntize.
Consumers of a particular country oftentimes benefit greatly from the products of a foreign country through international trade. However, sometimes domestic firms are at a disadvantage in producing the same or similar product because of tense competition from foreign counterparts. Two of the international tools that governments use are quotas and tariffs. These tools have strong support by domestic firms and their employees, and allow them to be more competitive with their foreign counterparts. A tariff is a tax imposed on imports by the government. Tariffs increase the cost of selling a good, therefore a foreign country will export less of a product because it will cost more to do so. A quota is a numerical limit imposed by a government on the quantity on foreign goods or imports into the country. Quotas allow domestic firms to produce more of a good for its consumers and also allow these firms
Cited: Hubbard, R., O’Brien, A (2010). Economics (3rd ed.). Boston, MA, Pearson Hall.