Mexico produce only two goods, fish and coconuts. They only consume goods
produced within their own country and do not trade with anyone. However Mexico needs more fish now.if they produce more fish they have to give up more coconuts. In the neighbor country, Canada has lower relative price in fish.Mexico and Canadian president sign agreement for trade.
Economics says that relative price in fish will fall in mexico after the agreement.
1. Will the mexican economy produce more or less fish after agreement? Will the mexican economy produce more or less coconut after agreement?
2. According to first answer will the agreement help or hurt Mexico
fishers? Will agreement help or hurt mexican coconut producers>?
1. After the trade agreement with Canada, the Mexican economy will likely produce less fish and more coconuts. Since Canada has a lower relative price in fish, it means that they can produce fish more efficiently than Mexico. As a result, Mexican fishers may find it difficult to compete with Canadian fishers, leading to a decrease in fish production in Mexico. On the other hand, Mexico may increase coconut production because they have a comparative advantage in coconut production compared to Canada.
2. The trade agreement may benefit Mexican coconut producers as the increase in coconut production can cater to the domestic demand and potentially lead to export opportunities. However, it may hurt Mexican fishers as they will face competition from Canadian fishers, leading to a decline in fish production and potentially job losses in the fishing industry. Therefore, the impact of the agreement on different sectors of the Mexican economy may vary.