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September 20, 2014

Homework Help: microeconomics

Posted by Deana on Monday, August 21, 2006 at 8:20pm.

I am having a problem with one of my homework questions and would like some help if possible...here is the question..

According to an article in the New York Times (Nov. 5, 1993),"many Midwest wheat farmers oppose the NAFTA free trade agreement asmuch as many corn farmers support it." for simplicity, assume that the U.S. is a small country in the markets for both corn and wheat, adn that without the free trade agreement, the U.S. would not trade these commoditites internationally..
Based on the 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.


Assuming the farmers are self-interested in their own economic welfare...

If the wheat farmers oppose NAFTA, they must fear the US will become an importer of wheat; foreign countries want access to the US wheat market because of the relatively high prices in the US market. If corn growers support NAFTA, they see foreign markets as export possibilities because of the relatively high prices in the foreign markets.

Free trade almost always leads to a net increase in economic welfare, both domestically and internationally.

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