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. (10%, Production)

Based on your answers to the earlier questions,

What is the likely effect on the production volume?
That is, how will the volume of cumulative production of products change?

Group of answer choices

Increase

Remain the same

Decline

2. Please explain the mechanism that will improve/reduce production

3. (15%, Employment)

Based on your answers to the earlier questions,

What is the likely effect on employment?

Group of answer choices

Increase (more people working)

Remain the same

Decline (fewer people working)

4. Please explain the mechanism that will improve/reduce employment

Answer 1

Answer 1 :

In my opinion,the mechanism of US Canada Union will result in increase in production.

Answer 2 :

This is because of the increase in trade between the countries.Although presently these countries are part of NAFTA (North American Free Trade Agreement),as discussed above there are still barriers in the form of administrative,monetary (like foreign exchange die to different currencies,etc.,),tax regulations,political issues etc.,

If a union happens it will reap the benefits similar to that of the member countries in the European Union - One Currency,unified economic and finacial systems,job creation,employment,almost no travel restrictions,etc.,

So,in a nushell the production increases because the demand increases as the trade restrictions cease.

Answer 3 :

In my opinion, Increase in Employment i.e more people working.

Answer 4 :

As US and Canda form a partnership, it will benefit firms in both countries. Firms in both countries can exploit their comparative advantage which will lead to efficiency in production. Thus, firms can cut cost and become more profitable which will allow them to hire more workers and increase employment. Many firms also have global supply chain where they import some of their raw materials from the other country. These films will benefit from free trade and the removal of any tariffs. The market for firms will also expand as it is easier to export theor produce so they have a bigger demand to cater to that can increase profits and make it more for the firms to expand and hire more.

Union-->More Trade--> More Demand-->More Production-->More employment / Investment

Please Please up vote my answer. I worked a lot to write a perfect answer. Please understand. Your up vote is so valuable to me. Thank you soo much.