Introduction

 Import and export is the essence of our world economy. Most if not all the countries around the world export and import goods and services depending on there needs to do so governments exercise their findings with careful consideration, limitations and restrictions. In the following paper we will attempt to discuss the advantages and limitations of international trade, we will provide analysis of absolute and comparative advantages and influence affecting foreign exchange rates. We also will review the team concept summary results and discuss as a team to evaluate the effect of government policy on economic behavior.

a) List at least one advantage and one limitations of International Trade as identified in the simulation.

One advantage of International Trade identified in the simulation is Free Trade Agreements.  Free trade agreements reduce barriers of trade, increase the amount of items that can be traded, allow countries to look at different markets, allow customers to be able to purchase improved products and open additional resources for investment.  The above can increase employment within all countries that participate. 

One limitation of International Trade as identified in the simulation is also Free Trade Agreements.  For countries that do not participate in Free Trade Agreements their barriers to trade are high.  The countries that do not participate in Free Trade Agreements find that the tariff is so high their income is reduced on their goods. 

b) Identify four key points from the reading assignments that were emphasized in the simulation.

There are key points that must be taken into consideration with international trade: gains and losses, tariffs, trade restrictions, and free trade.

Gains and losses can is how much the economy will gain to offset how much it will lose in trade. If the gains outweigh the losses, trade will be beneficial. The overall goal of trade is to raise the Gross Domestic Product (GDP) and sustain a healthy economy. 

The second key point is tariffs. Tariffs are taxes imposed on imports. Tariffs are used to give domestic suppliers a competitive pricing within the same market. If import goods cost less than domestic goods, domestic companies will suffer causing a loss of jobs and eventually the business may be forced to close. Tariffs can provide opportunity for new or lesser businesses and assist in repairing a declining economy.

            Trade restrictions are the next key point that we are addressing. Restrictions are put on the number of imports which means that the exporter is being instructed to only take a certain number of any given product during a given period. These restrictions force the exporter to produce less of the product which in turn hurts their country’s economy. Trade restrictions are normally the beginning steps towards a declining trade agreement; imposed when a country is in the early stages of a recession. The restrictions are a means of allowing domestic suppliers the opportunity to increase production and increase profits.

           Free trade allows the market to import and export products freely without any restrictions.  Most countries always strive to get free trade agreements because it is the best scenario for any country to be in, free trade allows countries the freedom to produce specialized products and export them to maximize sales. Yet free trade suppliers have to watch out from the global market.

c) Define absolute and comparative advantage.

Absolute advantage is the ability of a country to produce a specific good with fewer resources than other countries. Absolute advantage in production might exist because of their much longer experience in cultivating two different products and simply because they have more talent. We can not help but envy such productivity. This should not alter our production and decision to trade. The biggest concern is opportunity cost, which is what will have to be given up to get more of a desired good.  http://www.investorwords.com.absoluteadvantage. 

Comparative advantage is the ability of a country to produce a specific good at lower the opportunity cost than its trading partners. Comparison of the opportunity cost in each country exposes the nature of what we call comparative advantage. Countries should specialize in what its relatively efficient at producing. That would be goods for which it has the lowest opportunity costs. The world output and the potential gains from trade will help maximized when each of the countries pursues its comparative advantage. http://www.investorwords.com.comparativeadbantage.

d) Describe the influences affecting foreign exchange rates.

Each nation has its own currency which will require the use of two different currencies at some point in time.  Global Pricing is one influence affecting the foreign exchange rate for goods and services. The global pricing is a dollar price of imported good equal to foreign price of good multiplied by dollar of foreign currency. When the exchange rate changes so do the global pricing of exports and imports. Then there is appreciation and depreciation. Currency appreciation is an increase in the value of one currency relative to another. Currency deprecation is a decrease in the value of one currency to another. If the value of the nation’s currency decreases the exports become cheaper and the imports become expensive.  (Schiller, 2006, p 396-397) 

e) As a team, debate the issues surrounding international trade.

In trading with other countries there are always privileges and draw backs, whether the trade is good or bad for the country. Each country must consider the benefits very carefully. A For example, one of the major benefits to importing a good is that the time it would cost a business to produce that good could be spent producing another good that is more of a product per the time it takes to make (Mankiw, 2007).  One of the major problems that governments run into is taxation; the taxes or tariffs that need to be placed on goods to help protect their countries own interest and production.  If these such tariffs or taxes are not put into place then the trading that is done will ultimately not be regulated and can affect or even destroy one’s economy.

The simulation gave our team a good insight on how the tariffs and taxes work on importing and exporting goods. Some of the decisions on exporting and importing where difficult to make, after deliberation, we came to some consensus. The interesting part was seeing how tariffs play major role in the outcome. Every team member chose something different. When it came to choosing FTA with both neighboring countries it said that it was a good choice.

f)  For each member of the team, what were the Concept Summary results for the assessment?

g)  As a team, evaluate the effects of government policy on economic behavior.

The government uses two types of policies to regulate economic behavior: fiscal policy and monetary policy.  Fiscal policy uses government spending and taxes to steer the economy in the right direction.  Government spending increases the money being paid to workers, thus increasing their spending power.  This can also create jobs and increase the overall GDP of our country by inserting more money into the hands of consumers.  Taxes help to regulate the economy by providing a sort of “income” for the government; allowing the government to return that income into other products bought from other companies. 

Monetary policy “controls the currency by adjusting the value of money to control inflation and adjusting it to stimulate growth” (Economic Policy, 2009).  This mainly affects interest rates and inflation.  Inflation can be tied together with fiscal policy as well, due to the effect government spending has on creating jobs, thus decreasing unemployment and raising inflation.  Interest rates help to control the economy, but once spending increases, interest rates increase, investing decreases and cause an overall decrease in the GDP, and the economy as a whole.  Additionally, the government may inflict tariffs on imported goods to help keep the economy flourishing.

h)  Go to the World Trade Organization website (www.WTO.org) to address the following: What is the WTO?

An international organization with a purpose to open trade for the benefit of all nations is called the World Trade Organization (WTO).  Established in 1995 gives a platform for negotiating agreements to help initiate and facilitate international trade.  The World Trade organization monitors these agreements and provides the infrastructure for institutional and legal issues.  The World Trade Organization replaced GATT (General Agreement on Tariffs and Trade) which started in 1947.  http://www.law.duke.edu/lib/researchguides/gatt.html   The WTO has 153 members some of which are developing countries or separate customs territories.  The WTO has everyone’s best interest by looking for solutions that would make multiple clients’ needs under trade agreements.  http://www.wto.org/english/thewto_e/whatis_e/wto_dg_stat_e.htm

Briefly describe one trade topic identified by the WTO on the website.

One of the trade topics that least-develop countries want is Technology Transfer.  This requires developed countries to provide incentives for their companies to transfer technology to least- developed countries.  http://www.wto.org/english/tratop_e/trips_e/techtransfer_e.htm   This is described in Article 66.2 in February of 2003. 

And, what did you learn from the website about the WTO?

The WTO covers a vast amount of issues and concerns for countries, territories, and developing nations.  The WTO helps all nations by regarding political agendas and finding ways that collective agreements can be reached.  Political agendas between certain nations can hamper relationships, but with the WTO involved, a trade agreement that dissolves between two countries can spawn a new relationship and new avenues for trade.   

Conclusion

In conclusion, the best way for a country to thrive is through trade, and the fluctuation of exchange rates.  It is more advantageous for some countries to export goods because other countries can’t produce those same goods.  The agreement between those two countries is usually negotiated and monitored by the World Trade Organization.   The team evaluations show that in order to initiate trade the countries have to agree on which commodity, tariff charges, and the number of units in quotas to ensure the country’s best interest.  This paper has identified the team’s opinions on international trade, advantages of trade, a team simulation on trade, and an explanation on the WTO.  These factors help economists understand how countries can work together and independently to solve problems in the economy, and provide solutions when new problems arise.    

Reference

Duke Law Library and Technology (2009) GATT/WTO.  Retrieved from http://www.law.duke.edu/lib/researchguides/gatt.html
InvestorWords.(2009). AbsoulteAdvantage. Retrieved from   http://www.investorwords.com

InvestorWords.( 2009).Comparative Advantage. Retrieved from http://www.investorwords.com
Library Economics and Liberty.(1997-2007).econlibresources. Retrieved from http://econlib.org/libary/topics/details

Schiller, B. (2006). Essentials of Economics

The World Trade Organization (2009) What is the WTO. Retrieved from http://www.wto.org/english/thewto_e/whatis_e/wto_dg_stat_e.htm