International Trade Concepts - Essay Example

Running Head: [short [institute of affiliation] a. What are the advantages and limitations of International Trade identified in the simulation? AdvantagesMore choices: meeting more demands from the local economyEconomics is about the allocation of resources within a given economy. As people have unlimited wants and needs, countries themselves alone do not have enough resources in order to meet those needs. One of the reasons why countries trade with each other is to meet those needs and wants of the local consumers.

More efficient use of resources for each country through specializationThe more efficient use of resources for each country through specialization is another advantage of international trade. Because international trade is done by determining the comparative advantages of producing goods by another country through the concept of opportunity costs, countries can gain in terms of the overall efficiency.By specializing on certain goods that a country has a comparative advantage in producing, it is able to utilize its resources in producing those goods, which gives it greater efficiency.

More wealth, more demands for productsEngaging in international trade means that the demand for the country’s products is no longer limited to and determined by the home country. With international trade, the country’s product will have greater demands.These greater demands mean increase in wealth for the countries. Because there are greater demands for a product, with costs of production decreasing, assuming that with specialization the technology improves and the efficiency is increasing—production increases and wealth comes to the country.

Encourages local competition within industriesInternational trade encourages local competition within its industries in order to achieve efficiency. With more products in the market due to import or other companies bringing their products to compete with local competitors, local players are forced to produce more competitive products to satisfy the consumers.This stimulation of local competition can also bring down the prices of goods in a given industry. By making excellent products available to consumers at the same price level, satisfaction is met among the population.

Increase in intellectual capital as firms gain more experience in the production of certain goodsWhen firms go trading with countries, it is very usual that they bring with them the technical know-hows as regards their production. This experience adds to the increase in a country’s intellectual capital.When there is trade of goods, it is likely that trade in certain knowledge also follows. Therefore, this is beneficial to both countries as they exchange more knowledge in order to increase their technological capacities.

LimitationsBalance with local players’ interests be taken into considerationWhen more efficient foreign players enter a local industry, it can offer prices below the market clearing price. Due to this, there will be issues like dumping because the players’ interests are at stake, when they cannot compete with the more efficient foreign player in terms of price.International trade, therefore poses a limitation—a country should also consider the interests of the local players when considering a trade agreement as certain issues like dumping can happen.

The entrance of more efficient, foreign players definitely has an impact on the domestic players’ operations and profitability.Killing developing/infant domestic industriesWhen free trade agreements are drafted between countries, it is very likely that there are emerging industries that will be killed because of the competitions. When smaller industries start to flourish, and faced with larger foreign competitors, the development of the smaller players are hampered, thus these infant industries are not developed.b. What are the effects on international trade on the U.S. economy?

Greater efficiency of utilizing resources; competition encouragedInternational trade has enabled the US economy to divert its resources to activities that produce products where it has a comparative advantage. Because of this, the US economy has experienced greater efficiency due to trade.Consumer satisfaction improved: more choices for products, better products through domestic playersAs international trade brings more goods from other parts of the world, there are more products that are available for consumers as choices.

Due to increase in competition within various industries, companies are forced to create excellent products that will meet the consumers’ expectations.As more and more products come to the US, consumers have a wider array of choices in order to meet their wants and needs. With this, domestic players are forced to deliver excellent products in the market in order to compete with their foreign competitors. These domestic players are also forced to become more efficient in their operations in order to survive in their industry.

Increase in intellectual and knowledge capital brought by companies that conduct trade with the USAs more and more countries trade with the US, intellectual capital in the form of people and information that comes in the country is increased. This increase in intellectual capital helps the US improve its technology. The amount of information that comes in the country also increase as it engages in more trade, and this information contributes to the intellectual capital that the country uses to develop its own technical know-hows.

Reference ListAppleyard, Field, & Cobb., (2006), International Economics (5th ed.). McGraw-Hill IrwinBarro, R. J., (1997). Macroeconomics. 5th ed. Cambridge, Massachusetts: MIT Press.Samuelson, P. A. & Nordhaus, W. D., (2004), Economics (International Ed.). McGraw-Hill Irwin.