Question

1. Suppose the United States is a large importer of Mexican tortilla. Following the implementation

of NAFTA, U. S. tariff on tortillas decreased from 25% to 0.

a) What is the impact of the NAFTA on U. S. tortilla producers, Mexican tortilla producers,

and U. S. tortilla consumers?

2. Rank the following in ascending order of Home welfare and justify your answers. If two items are equivalent, indicate this accordingly.

A. Tariff of t in a small country corresponding to the quantity of imports M

B. Tariff of t in a large country corresponding to the same quantity of imports M

C. Tariff of t​′​​ in a large country corresponding to the quantity of imports M​′​​>M

Answer 1

1.

Due to NAFTA, tariff decreased to zero in the USA, and it created increased in exports of the Mexican tortilla to the USA from Mexico. It will create bigger opportunity for the Mexican Tortilla producers. Hence, import to the USA will increase. It will negatively affect the US tortilla producers and their supply will decrease if they don't decrease the price to the level of Mexican Tortilla import. It will force them to improve to stay in the market.  US consumers will be benefited due to higher competition. It will bring superior quality at a lower price to the US consumers and they will be more happier.

Pl. repost other unanswered questions for their proper answers!