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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.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter3: Interdependence And The Gains From Trade
Section: Chapter Questions
Problem 5CQQ
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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.
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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