3. Suppose that Mexico, before the formation of NAFTA, had the option of importing stoves either from the United States at a constant cost of $500, or from Brazil at a constant cost of $400. It had a 30% tariff on all imports of stoves. Under these circumstances, Mexico was importing stoves and also producing stoves in its domestic stove industry, with an upward sloping domestic supply curve. From which country did Mexico import stoves, prior to NAFTA, and why? b) a) When NAFTA was formed, Mexico reduced its tariffs on all imports from the United States to zero. How, jf at all, should that have changed the each of following? (You need only indicate the direction of change, but explain your reasoning.) The domestic price of stoves in Mexico? i. i. The quantity of stoves imported? The country from which it imported? ii. iv. Production of stoves in Mexico? Consumption of stoves in Mexico? Mexican tariff revenue? v. vi. c) Identify "trade creation" and "trade diversion" in this case, and explain how this matters for the welfare of Mexico?

3. Suppose that Mexico, before the formation of NAFTA, had the option of importing stoves either from the United States at a constant cost of $500, or from Brazil at a constant cost of $400. It had a 30% tariff on all imports of stoves. Under these circumstances, Mexico was importing stoves and also producing stoves in its domestic stove industry, with an upward sloping domestic supply curve. From which country did Mexico import stoves, prior to NAFTA, and why? b) a) When NAFTA was formed, Mexico reduced its tariffs on all imports from the United States to zero. How, jf at all, should that have changed the each of following? (You need only indicate the direction of change, but explain your reasoning.) The domestic price of stoves in Mexico? i. i. The quantity of stoves imported? The country from which it imported? ii. iv. Production of stoves in Mexico? Consumption of stoves in Mexico? Mexican tariff revenue? v. vi. c) Identify "trade creation" and "trade diversion" in this case, and explain how this matters for the welfare of Mexico?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Find the attached file.

3. Suppose that Mexico, before the formation of NAFTA, had the option of importing stoves
either from the United States at a constant cost of $500, or from Brazil at a constant cost of
$400. It had a 30% tariff on all imports of stoves. Under these circumstances, Mexico was
importing stoves and also producing stoves in its domestic stove industry, with an upward
sloping domestic supply curve.
From which country did Mexico import stoves, prior to NAFTA, and why?
b)
a)
When NAFTA was formed, Mexico reduced its tariffs on all imports from the United
States to zero. How, jf at all, should that have changed the each of following? (You need
only indicate the direction of change, but explain your reasoning.)
The domestic price of stoves in Mexico?
i.
i.
The quantity of stoves imported?
The country from which it imported?
ii.
iv.
Production of stoves in Mexico?
Consumption of stoves in Mexico?
Mexican tariff revenue?
v.
vi.
c)
Identify "trade creation" and "trade diversion" in this case, and explain how this matters
for the welfare of Mexico?

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