International Trade Simulation

Introduction

International trade is important because it provides people with more selection of goods and services to choose from. Free trade between countries not only encourages economic growth and freedom, it also promotes innovation and competition in the market. Sometimes trade restrictions are imposed because dumping of goods from other countries occurs, or where free trade may hamper the growth of a developing industry. This stimulation also covers the theory of comparative advantage, the impact of quotas, tariff, and dumping, and the reasoning behind free trade agreements (FTAs).

Opportunity Costs and Comparative Advantage

Comparative advantage is dynamic and can change over time. Factors like improvements in technology, investment in research and development, change in quantity or quality of product, inflation, or import restrictions (tariffs and quotas) can change the comparative advantage of a country in comparison with another.

A country should specialize in the production and trade of commodities that it can produce at a lower opportunity cost with other countries. By doing so, each country can earn more wealth and use its resources most efficiently. The overall output and total welfare of all countries increases as well.

Implications of Dumping, Anti-Dumping Duties and Quotas

The anti-dumping duty is a better decision for the scenario because deadweight loss (the loss in consumer and producer surplus) to the nation is less in the case of a duty. The level of tariff charged ($40 per unit) is also appropriate to equate the export price of watches in Rodamia to the market value.

Dumping causes harm to the domestic industry, because the imported product is available at a lower price than the domestic product. It increases the demand for the imported product and reduces demand for the domestically produced goods.

The application of quota will benefit the local producers. They will have control over the local market because of the reduced availability of the foreign goods. Consumer, on the other hand, will have a limited supply of the foreign good and will not benefit from a lower price that a foreign supplier could provide.

Impact of a Tariff on Imported Goods and Relationships with Trading Partners

Not imposing trade restrictions will benefit the overall welfare of all countries concerned, but Rodamia's domestic corn industry may suffer. Imposing restrictions will cause a deadweight loss as well as a loss in trade balance, but it will protect Rodamia's domestic industry.

If a tariff is applied, both government and local producers will have advantage because local producers are able to sell products at equal or lower rates, and the government can get revenue from the tariffs. The losers in the case of a tariff would be the consumers - they will not benefit from a lower price that a foreign supplier could deliver; at the same time, the product from foreign supplier may not be able to gain any advantage in the market on pricing.

Free trade is better than trade with restrictions, but in some situations, trade restrictions