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48) This opening to trade may upset some in each country. We might expect UK__producers and US producers to protest against this change: A) (C, W) B) ( CC) C) (W, W) D) (WC) E) none of the above.

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27 Apr 2018
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Related questions

Imagine that the US and Canada do not trade with each other. Both countries have a downward sloping average cost curve for producing golf balls, but the US average cost curve is lower than the Canadian average cost curves for all values of Q (# of golf balls produced within the country).

a) Draw a graph for each country. Name some reasons that the US might have a lower average cost curve than Canada. b) Imagine that trade opens between these two countries for golf balls. Explain what you expect to happen and why.

c) On your graphs in part (a) demonstrate the effect of opening trade. Label the new world demand curve at Dworld.

d) For the following parties, say why you think each one would be better or worse off because of trade. Note that the overall effect is unclear for two of the parties, but trade clearly affects the other two: consumers in the US, producers in the US, consumers in Canada and producers in Canada.

We talked in class about free trade areas, customs unions and common markets. We also discussed 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 we discussed 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)

1. If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.

Is the statement true or false?

2. When a country opens up to trade in a good for which it has a comparative advantage, and the country begins to export the good, we can conclude that:

  a.

The domestic price will fall after trade opens up.
  b.

The total surplus for this good will increase as a result of opening up the market to international trade.
  c.

Opening the market to international trade will create a deadweight loss.
  d.

Both buyers and sellers in that country will be better off as a consequence of opening up the market to international trade.

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