Whizznebart should engage in trade with the other countries. The country when participating in the trade will engage in absolute advantage trade. Absolute advantage is defined as the ability a nation to manufacture a given good more resourcefully when compared to another country (Rugman & Verbeke, 2017). Comparative advantage, on the other hand, is defined as the ability of a nation to manufacture a given good with a reduced opportunity cost when compared to another nation. Whizznebart should use absolute advantage since the other countries; Gizmo and Everland can produce the agricultural and the manufactured products that Whizznebart tends to involve in with lower marginal costs. They can produce the goods with fewer and cheaper materials, in less time and with fewer laborers as compared to when Whizznebart was to produce the goods on their own. Gizmo would produce wheat at lower costs as compared to Whizznebart and it would be effective for them to engage in absolute advantage when they trade wheat. Evenland would also produce heart rate monitors at a lower cost with the cheap, available labor as compared to when Whizznebart was to involve in its production. Whizznebart would also produce smartphones efficiently as compared to both Evenland and Gizmo.
Question 2
Whizznebart should specialize in smartphone exports. According to the data shown above, the country’s production on smartphones is valued at 20 million similar to Evenland. However, Evenland has an advantage on the production of heart rate monitors. Whizznebart can specialize in the production of smartphones and expert it to Gizmo and Evenland which may then decide to specialize in the production of Heart rate monitors. Whizznebart should then essential sardines and wheat since the country has no proper agricultural grounds and the fishing in the country is not well developed. Whizznebart can then import heart rate monitors from Evenland. The country has the right resources to produce a large quantity of the product as compared to when Whizznebart would decide to involve in its production. The export and the import decisions by Whizznebart should consider the products that would be produced at a lower cost and the products which each country is likely to specialize in considering its resources (Rugman & Verbeke, 2017).
Question 3
When Gizmo decides to start dumping the production of smartphones at the cost of Whizznebart, the government should ensure the right resources and a strategy is developed to increase the production of smartphones (Rugman & Verbeke, 2017). The strategy may include dumping the production of wheat and sardines and obtain them from Gizmo. Since the country is involving in an absolute advantage trade, it can decide to involve in the smartphones only and put the other resources that were used in other areas such as in the production of wheat more into smartphone production. They can use the funds that they gain from the trade with Gizmo and Evenland to purchase other goods that they may not be able to produce efficiently. The manufacturing sector of the country that had been in a continuous reduction of the years can be recovered in such cases. The other countries will see the importance of not involving the production of smartphones as they will be able to obtain them from Whizznebart. International trade would be enhanced between the three countries.
Question 4
Free Trade Agreement would involve Whizznebart trading with other countries without Anaya trade barrier such as tariffs. Free Trade Agreement will make sense to the country regarding the benefits that it will bring to the country. It would open opportunities for investors and exporters to expand their business in the new markets (Rugman & Verbeke, 2017). It will increase market access across areas of trade of Whizznebart and help maintain the competitiveness of the organization. The agreement would also benefit the consumers in Whizznebart as they will be able to access a variety of goods. Free Trade Agreement would also provide business innovation and productivity. It could increase the productivity of some of the goods that Whizznebart may decide to specialize. Increased productivity would imply an increased growth in Whizznebart’s GDP through allowing the domestic producers to have access to cheaper inputs that they may need in their production and introduce technologies which would, in turn, leads to increased innovation. FTA would also make sense in promoting regional integration between Whizznebart and the other countries. Promoting regional integration would also imply that the trade between the countries will increase and they will be more goods flowing between the economies.
Question 5
Foreign exchange is important global investing and global trade. It is essential in supporting imports and exports, and their consideration in imports and exports are meant to gain contact with resources and generate added demand for products and services. When there is no ability to do business in diverse currencies, the prospects of organizations would be limited and the international economic growth would in this case suffer. Entering into a trade partnership with various companies means that they are getting into an agreement where they use a similarly rated currency (Rugman & Verbeke, 2017). The countries may also decide to enter into an agreement where they trade with the different currencies. Changes in the exchange rates may impact the agreement as the value that may have been considered at the time of the agreement may have changed. Currency rates also affect the selling and buying of foreign assets. Some investors when entering into trade partnerships view currencies as an asset class and the trade currencies to generate alpha.
- Rugman, A., & Verbeke, A. (2017). Global corporate strategy and trade policy. Routledge.
