Question
Consider the following: Canada U.S. Rest of the World (ROW) PxC=$8 PxUS=$5 PxR=$4 Assume that this tariff rate is 50%. (a) Use the appropriate diagram
Consider the following:
Canada U.S. Rest of the World (ROW)
PxC=$8 PxUS=$5 PxR=$4
Assume that this tariff rate is 50%.
(a) Use the appropriate diagram to show the welfare effects on Canada if a free trade agreement (FTA) is formed between Canada and the U.S.
(b) Describe the two usual effects that could arise from forming an FTA. Are both effects present in this case? Explain intuitively.
(c) Given your answers in (b), can you conclude whether this FTA is beneficial or not beneficial to the world as a whole? Explain.
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Microeconomics
Authors: David Besanko, Ronald Braeutigam
5th edition
1118572270, 978-1118799062, 1118799062, 978-1118572276
