Question

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

Answer and Explanation:

As per the data given in the question,

For Situation 1 :

a) Since US products will not have duty, Consumer will purchase from US>

b) If there is NAFTA, now the tax on China is higher at $5 which make them inappropriate, therefore consumer would like to purchase from Mexico at $6.

c) As country would be misleadingly separating against different items which will cause to increase wastefulness, So US consumers and the country as a whole is not happy with NAFTA.

For Situation 2 :

d) Consumers would like to purchase from China even with $3 duty cost is less, and total cost with tax is $7.

e) Consumer will purchase form Mexico as there is no levy and they can supply for $6.

f) Free trade agreements are critical to guarantee that exchange takes place absent a lot of taxes, it is necessary to advance directly commerce with NAFTA area for fate of US, Mexico would purchase measures of merchandise from US therefore this agreement should be invited for sure.