Question

SCENARIO BACKGROUND:
The controversy surrounding the European Union, as well as the recent increase in tension between the U.S. and Canada leaders, prompted many American analysts and politicians to weigh pros and cons and predict likely economic of closer integration in North America.

While most agree a US-Mexico union would have outweighing negative consequences for the US at this stage, primarily because of the great economic, political, societal and cultural differences between the countries, there is no consensus on the likely outcomes of a US-Canada union. Opinions range from “it would be a great economic success” to “it would ruin economies of both countries”.

The President and his administration do not see a US-Canada union as a likely scenario for the nearest future, but the government strategies have to consider and be prepared for any scenario, no matter how unlikely it may seem.

As a person knowledgeable in the area of the effects of government interventions in trade and regional integration, you are one of many experts invited by the Strategy Division of the Presidential Advisory Board to provide your visions on the likely consequences of a US-Canada Union. The scenario is planned for an economic union (common currency, taxes, laws and regulations, economic and foreign trade policies, unrestricted within-union trade and employment, central parliament, etc.) though a possibility of a political union is also considered.

The task is to predict the likely consequences of such a union, the two countries essentially becoming one, on public opinion, prices, internal and external trade, employment, investments, revenues and consumption. It is made very clear that your opinion must be rooted in existing economic theory covered in MGT 301. There are five questions (see template on the next page): If the US and Canada were to become one country, how would that likely affect the following domains of life?

Note: Please keep in mind that even though Canada and the U.S. are currently in a free-trade zone, there are many administrative, monetary, and political barriers to trade. For example, the traders must deal with the uncertainties and costs of currency exchange, the need to do separate certification in each territory, differences in taxes and other issues. So the trade between, for example, Montana and Alberta is still much harder than, for example, between North Carolina and Virginia.

The proposed scenario assumes a political union and removal of all trade barriers.

Note: The questions are about the changes in what today is the U.S. (will it affect the variety of products, prices, wages, unemployment and so far in the U.S. part of the new country).
However, the assumption is that the effect will be the same for both parts of the new country. If you believe that the effect will be different, you can explain it, though such differentiation is not required.

1. (5%, Variety)

What will be the likely effect on the variety of products available to the consumers in the two countries?

Group of answer choices

Increase

Remain the same

Decline

2. Please explain the mechanism that will increase/decrease the product variety available to the consumers?

3. (10%, Prices)

What is the likely effect on the prices of products available to the consumers?

Group of answer choices

Increase

Remain the same

Decline

4. Please explain the mechanism that will increase/decrease the prices and provide examples of most affected industries

Answer 1

The United States and Canada are very much integrated. Both share same values, lifestyles and aspirations.

1. What would be the likely effect on variety of products available to the consumers in the two countries ?

Will increase

2.. Please explain the mechanism that will increase/decrease the product variety available to the consumers?  

The firms in both countries will be getting to reach a wider market. The companies would be producing products of high quality in significant variety and and a low prices .

3. What is the likely effect on the prices of products available to the consumers?

Decline

4. Please explain the mechanism that will increase/decrease the prices and provide examples of most affected industries.

With combined market for the companies and with increased choices for consumers, competition will increase. When demand is less than the supplies, rates are bound to decline. With more players in the same market for same variety, increasing competition will hit the rates of the products negatively.

Conclusion : No two nations in the world are as integrated, economically and socially, as the United States and Canada. Still there would be differences in administration styles , values and culture. With due respect to each others independent culture and history, US and Canada can do a lot more being together in future.