International Trade Simulation and Report Essay Example

imports' value. Furthermore, the concept of opportunity cost was emphasized as a means to measure comparative advantage.

The differences in comparative advantage among countries arise from their unique combinations of natural resources and factors of production, such as land, labor, capital, and entrepreneurship. When a company sells a product to another country at a price lower than its domestic charge, it is considered "dumping" the product. Whether this constitutes unfair competition depends on varying opinions. Nevertheless, many governments take action against dumping to protect their domestic industries. Merely determining the extent of dumping on a product is insufficient; anti-dumping measures can only be implemented if the dumping negatively affects the importing country's industry.

Absolute and Comparative Advantage

If one country can produce a good more efficiently or with higher productivity compared to another country, it possesses an absolute advantage in producing that good.

The concept of absolute advantage is a relative term that involves comparing economic units. It involves comparing the productivity of industries across different countries. The theory of absolute advantage, which was developed by David Ricardo and, to some extent, John Stuart Mill, is credited with the development of theories of absolute and comparative advantage. Adam Smith's ideas on international trade also contributed to the development of these theories (Economypedia, March 18, 2009). If a country can produce a product at a lower opportunity cost compared to another country, it is said to have a comparative advantage in the production of that product (Int’l Trade Theory and Policy, July 18, 2006). Comparative advantage is used to determine the potential welfare that can be gained from trade and specialization.

Foreign Exchange Rate Foreign Exchange, like any other commodity,

is prone to price fluctuations. Several factors contribute to these fluctuating exchange rates. One such factor is international trade, which impacts the currency value. Nations with high exports or imports tend to witness changes in their Forex standards. Countries that export a significant amount of goods and services usually experience an appreciation in their currency value. Conversely, countries with higher imports see a decline in the value of their currency since they spend more on trading partners than they receive in return. Exchange rates are also influenced by political and psychological factors. Some currencies have a tendency to exhibit specific behaviors, such as the Swiss franc being considered a refuge currency.

The US Dollar is frequently considered a more secure currency in the midst of worldwide political crises. Speculation often impacts the value of currency, particularly when there is a perception that an economy is experiencing excessive growth and devaluation is imminent. During these instances, speculators typically withdraw their funds, resulting in an excess supply of the currency on the Forex market and leading to its depreciation.

World Trade Organization

The World Trade Organization (or "WTO") functions as an international cooperative organization providing a forum for discussions on global trade.