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International Trade Simulation

No two countries are perfectly alike. Each has a different set of advantages, such as rich mineral deposits, a climate and land suitable for agriculture, a strong infrastructure, skilled laborers and professionals, and even funds available for investment and entrepreneurs who know how to use them. When taken together, each country will find that it has a competitive advantage at producing some products rather than others. By exporting these products, and importing those which are more expensive to produce domestically, a country can use international trade to enrich its citizens and increase the wealth of the country as a whole.

The simulation begins with the government of Rodamia considering the fostering of trade relations with its neighbors. The first step in the process is to calculate the opportunity cost of each product that the country presently produces. The opportunity cost is the production that must be given up in order to produce an item. For example, farms can use land to grow corn, or they can let cows graze in those fields and produce cheese. You cannot use the land for both. The set of combinations which fully utilize all of a country's assets are called the production possibilities frontier (PPF).

In the year 2XX4, the opportunity cost ratio for corn and cheese in Rodamia is 1 unit of corn to 2 units of cheese. This ratio is then compared to the ratios in the nearby countries: 1:1 in Uthania and 1:1.5 in Alfazia. Rodamia has a competitive advantage in cheese production because it can produce 2 units of cheese with the same opportunity cost of 1 unit of corn as Uthania can produce 1 unit of cheese and Alfazia can produce 1.5.

On the other hand, Uthania has a competitive advantage over Alfazia in the production of corn, producing 1 unit of corn with the same resources to Alfazia's .6. Thus Rodamia can increase its wealth the most by exporting cheese to Uthania and importing

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International Trade Simulation. (1969, December 31). In LotsofEssays.com. Retrieved 03:25, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1696208.html