Friday, March 10, 2006

Trade

According to an article in the New York Times, "many Midwest wheat farmers oppose the free trade agreement [NAFTA] as much as many corn farmer support it." (Nov 5, 1993) Assume that the US is a small country in the markets for corn and wheat, and that without the free trade agreement, the US would not trade these commodoties internationally (these are both false, but it makes the questions easier to understand).

a. is the world wheat price above or below the US "no trade" wheat price? (the price where we would choose not to trade with another country)

b. is the world corn price above or below the US "no trade" corn price?

c. Considering both wheat and corn, does NAFTA make US farmers as a group better or worse off?

d. Does it make US consumers better or worse off?

9 comments:

freejon said...

a)below because the wheat farmers are against the free trade agreement. The only way they would be against it is if they feel they wont sell as much because their prices are higher. Therefore, the WP are lower.

b)Likewise, the WP of corn is higher because the corn farmers are not worried and will sell more because they will increase their costumer potiental.

c)Maybe better? Then the US farmers could specialize in corn and increase their profits.

d) Its better for farmers because then we get the lower price of both products.

schmid said...

a.)The world price for wheat is below since wheat farmers are against free trade. If it was higher, wheat farmers would want to trade because they would make more money.

b.)The world price for corn is above since corn farmers are for free trade. Corn farmers would not be for free trade if it did not benefit them.

c.) Better (Economists favor trade)

d.) In general it makes US consumers better off.

jacnbox said...

hmm...ok. this is worded in a confuddling way. heres what ive got:

A) Because the wheat farmers are against a free trade agreement, the price must be below. When the price is below WP, then the prodcer/supplier surplus decreases. This is the only logical explanation as to why the farmers are against the agreement.

B)Corn is the exact opposite. We can produce corn more efficiently than other countries, having an advantage over them. This rakes in dough for the corn farmers. If the trade agreement is implemented, our corn revenue would be impressive, and our corn farmers happy. The price of corn is above the US "no trade" corn price.

C)This completely depends upon the ratio of corn farmers to wheat farmers. If corn farmers out number the wheat, then we will be able to make more money. However, if that is untrue, we will lose money. Also, according to economists, taxes or tariffs or quotas all damage the market. So in a sense, the agreement is good on all levels.

D) If our equilibrium price is higher than the WP, then US consumers are better off, because we are able to consume our goods and keep the money in the US economy, instead of someone else's.

i think D was a run-on sentence. meh.

Annie said...

a) the world wheat price is below the Us wheat price because if wheat farmers oppose NAFTA then the world-wide market must have a lower price that would discourage US buyers from buying domestically asopposed to internationally.
b) the world corn price is above the US no trade corn price because that is why the us wants to trade, buyers from foreign markets will want the US lower prices

Annie said...

c) i think it depends on the numbers, but it seems that it would make the us worse off because although they would gain some money from trading more corn,they would usually lose more by not trading wheat. (chapter 5 somewhere)

d) it will make us consumers better off because not only will they have the good corn prices, they will also have improved wheat prices

theczyzewicz said...

a. The world trade price is below it, because if we're not trading with other countries, the price of our own wheat is going to be higher than the world price because there aren't any substitutes...so the competition is lost, and the wheat farmers can set the price as high as they need to.

theczyzewicz said...

b. pretty much the same answer as a.

c.NAFTA makes US farmers better off because then they're getting a higher profit because everyone has to buy their product.

d. it makes the consumers worse off because they don't have any options to buy cheaper wheat/corn and are forced to pay the high price.

cherie said...

a. The world wheat price is below the US wheat price because the wheat farmers are against NAFTA. They are against this because their prices are higher and consumers would want the cheaper wheat which would lower US wheat farmers surplus.

KM said...

The tough one here is C - are farmers better off.

Sarah is right - economists always like trade, and it is always better for the consumer. It is possible, though, that the domestic producer could be harmed. Jacqui has it - it depends on what's going on there between corn & wheat.

Because we don't have all the info, just about any answer could work for C - AS LONG AS YOU SUPPORT YOUR OPINION! :)