(Solution Download) According to an article in The New York Times (Nov. 5, 1993), ?many Midwest wheat farmers oppose the...


According to an article in The New York Times (Nov. 5, 1993), ?many Midwest wheat farmers oppose the [North American] free trade agreement [NAFTA] as much as many corn farmers support it.? For simplicity, assume

 

that the United States is a small country in the markets for both corn and wheat, and that without the free trade agreement, the United States would not trade these commodities internationally. (Both of these assumptions

 

are false, but they do not affect the qualitative responses to the following questions.)

 

a. Based on this report, do you think the world wheat price is above or below the U.S. no-trade wheat price? Do you think the world corn price is above or below the U.S. no-trade corn price? Now analyze the welfare consequences of NAFTA in both markets.

 

b. Considering both markets together, does NAFTA make U.S. farmers as a group better or worse off? Does it make U.S. consumers as a group better or worse off? Does it make the United States as a whole better or worse off?

 







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