International Trade Simulation Definition

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International Trade Simulation Darlene Traci Kepner XECO/212 June 17, 2012 Jim Vernon International Trade Simulation I am advising International trade recommendations for the President of Rodamia. The advantages of international trade and investments imports will create a wider variety of products which will give them a choice in price and quality. Domestic producers can expand and sell their products to other countries creating jobs, capital, and new investments, increasing the economy. When trading you have to look at the opportunity of cost production this is what defines the comparative advantage in which a country can produce a particular good or service at a lower marginal price, compared to another country; basically a choice…show more content…
Alfazia needs new computers, but it cost 1000 dollars and 5 employees to make computers in their county and Suntize makes computer for 500 dollars and 5 employees to make computers in their country. Suntize needs Tobacco products and Alfazia has had plenty of tobacco and cigarettes and Suntize makes computers for 500 dollars and has a hard time growing tobacco. The two countries can make an exchange, if Alfazia trades cigarettes which are cheaper to make, than in Suntize, who makes computers for 500 dollars, and has to sell cigarettes for 6.00 a pack. The two countries could have a free trade agreement on these items which would make it more affordable for their tourist and consumer for each country; because it is cheaper for Alfazia to trade cigarettes to Suntize and for Suntize to trade computers. This would make it cheaper for consumers to purchase computer in Alfazia and cheaper for tourist to buy cigarettes in Suntize. Therefore, Suntize has the absolute advantage. To define Comparative advantage is a countries ability to produce a product at a lower marginal cost and opportunity cost over another country. So Alfazia and Uthania both grow corn and poultry, while Alfazia can grow more corn for a cheaper price than Uthania. While Uthania can produce more poultry at a lower price than Alfazia; this would…show more content…
So each country has different currency, for example country A currency is 2 bills to our United States currency B which equals a dollar. So if we trade with country A we would get more for our dollar then country A would get less for their currency. The factor of inflation is a country that has consistently lower purchasing power like country A. This can cause higher interest rates for that country. Another influence is what they hold in a current account could be considered a deficit which means the country is spending more on foreign trade than it is receiving. This creates a supply of their own currency than a demand for its products. According to our text, Mankiw, (2007) 1. Consumers are wealthier, which stimulates the demand for consumption goods. 2. Interest rates fall, which stimulates the demand for investment goods. 3. The currency depreciates, which stimulates the demand for net exports. (p.748). A declining exchange rate decreases the buying power of currency and capital gains resulting from any revenues. These exchange rates take an important role in the rate of revenues on their

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