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?
3 comments:
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.
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.
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! :)
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