2. Trade creation and trade diversion Suppose that with free trade, the cost to the United States of importing a keyboard from Mexico is $13.00, and the cost of importing a keyboard from China is $11.00. A keyboard produced in the United States costs $18.00. Suppose further that before NAFTA, the United States maintained a tariff of 30% against all keyboard imports. Then, under NAFTA, all tariffs between Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the world price of keyboards. In the following table, indicate which country the United States imported keyboards from before NAFTA. Then indicate which country the United States imported keyboards from under NAFTA. Check all that apply. (Note: Leave the row blank if the United States doesn't import from either country.) United States Imports from... Scenario Before NAFTA Under NAFTA Mexico China In the following table, indicate whether each stakeholder gains, loses, or neither gains nor loses as a result of NAFTA. Stakeholder U.S. government Gains Loses Neither Gains nor Loses Mexican producers Chinese producers creation Consumers in the United S diversion This is an example of trade resulting from a regional agreement.
2. Trade creation and trade diversion Suppose that with free trade, the cost to the United States of importing a keyboard from Mexico is $13.00, and the cost of importing a keyboard from China is $11.00. A keyboard produced in the United States costs $18.00. Suppose further that before NAFTA, the United States maintained a tariff of 30% against all keyboard imports. Then, under NAFTA, all tariffs between Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the world price of keyboards. In the following table, indicate which country the United States imported keyboards from before NAFTA. Then indicate which country the United States imported keyboards from under NAFTA. Check all that apply. (Note: Leave the row blank if the United States doesn't import from either country.) United States Imports from... Scenario Before NAFTA Under NAFTA Mexico China In the following table, indicate whether each stakeholder gains, loses, or neither gains nor loses as a result of NAFTA. Stakeholder U.S. government Gains Loses Neither Gains nor Loses Mexican producers Chinese producers creation Consumers in the United S diversion This is an example of trade resulting from a regional agreement.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Trade creation and trade diversion
Suppose that with free trade, the cost to the United States of importing a keyboard from Mexico is $13.00, and the cost of importing a keyboard from
China is $11.00. A keyboard produced in the United States costs $18.00.
Suppose further that before NAFTA, the United States maintained a tariff of 30% against all keyboard imports. Then, under NAFTA, all tariffs between
Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the
world price of keyboards.
In the following table, indicate which country the United States imported keyboards from before NAFTA. Then indicate which country the United States
imported keyboards from under NAFTA. Check all that apply. (Note: Leave the row blank if the United States doesn't import from either country.)
United States Imports from...
Scenario
Before NAFTA
Under NAFTA
Mexico
China
In the following table, indicate whether each stakeholder gains, loses, or neither gains nor loses as a result of NAFTA.
Stakeholder
U.S. government
Gains Loses Neither Gains nor Loses
Mexican producers
Chinese producers
creation
Consumers in the United S
diversion
This is an example of trade
resulting from a regional agreement.
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