Question

2. Your text talks about free trade areas, customs unions and common markets. It also discusses basic principles of the WTO, including trade should not be discriminatory and should head in the direction of fewer rather than more barriers. And finally it discusses the welfare impacts of tariffs and other trade barriers on a country, including consumers, producers and government. Suppose three countries US ($8), Mexico ($6) and China ($4) make a good at the prices in parenthesis. Now consider the following alternative scenarios:  Scenario 1: The current tariff rate is $5 a. If there are no free trade arrangements, from which country’s producers will US consumers buy the product? (1 point) b. If we now signed NAFTA, from which country’s producers will US consumers buy the product? (1 point) c. Are US consumers and the country as a whole better off or worse off with NAFTA and why? (1 point)  Scenario 2: The current tariff rate is $3 d. If there are no free trade agreements, from which country’s producers will US consumers buy the product? (1 point) e. If we now signed NAFTA, from which country’s producers will US consumers buy the product? (1 point) f. Are US consumers and the country as a whole better off or worse off with NAFTA and why? (1 points) g. What is the difference in the two scenarios? What does that tell you about the impact of free trade agreements? (2 points)

Answer 1

Situation 1)

A) Consumers will purchase from US as US products won't have duty

B) Now there is NAFTA the tax on china is higher at $5 per item which make them incompetitive, so shoppers will purchase from Mexico at $6

C) Consumers are not happier with NAFTA, Country in a general is additionally more terrible off as it would be misleadingly separating against different items which add to wastefulness

Situation 2)

D) Consumers will purchase from china even with $3 duty cost is lower, Total expense with levy is $ 7

E) Consumers will purchase from Mexico as they can supply for $6 without any levies

F) Free exchange agreements are critical to guarantee that exchange occurs absent a lot of levies, It is essential to advance unhindered commerce with NAFTA area for eventual fate of the United States, Mexico do purchase immense measures of merchandise from the United States so surely this agreement must be invited.