Suppose that Canadian farmers can grow wheat more cheaply than can U.S. farmers. In the interest of efficiency, what is the desirable outcome?
1) Allow the Canadian farmers to sell their wheat for a lower price.
2) Pass a law in Canada mandating a minimum price for wheat equal to what is charged by U.S. farmers.
3) Pass a law in the United States mandating a maximum price for wheat equal to what is charged by Canadian farmers.
4) Have U.S. citizens boycott Canadian wheat.
In this scenario, where Canadian farmers can grow wheat more cheaply than U.S. farmers, the goal of efficiency suggests that the desirable outcome would be to allow for free trade between the two countries. This means that Option 1) Allowing Canadian farmers to sell their wheat for a lower price would be the most appropriate choice.
Explanation:
When it comes to efficiency and the allocation of resources, free trade generally leads to better outcomes. By allowing Canadian farmers to sell their wheat for a lower price, it enables consumers in both countries to benefit. Canadian farmers can take advantage of their lower production costs and provide affordable wheat to consumers, while U.S. consumers can enjoy lower prices compared to what would be available if only U.S. farmers were producing wheat.
Passing a law in Canada mandating a minimum price for wheat equal to what is charged by U.S. farmers (Option 2) would not be ideal. It would prevent Canadian farmers from taking advantage of their cost advantage, resulting in higher prices for consumers.
Similarly, passing a law in the United States mandating a maximum price for wheat equal to what is charged by Canadian farmers (Option 3) would also be inefficient. This would limit the ability of Canadian farmers to compete and benefit consumers in the U.S., while also potentially discouraging production by U.S. farmers.
Option 4) Having U.S. citizens boycott Canadian wheat would not be an efficient solution either. It would limit consumer choice and potentially lead to higher prices for U.S. consumers since they would miss out on the lower-priced Canadian wheat.
Overall, allowing Canadian farmers to sell their wheat for a lower price through free trade is the most desirable outcome in terms of efficiency.