International Trade Simulation
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,