1. The U. S. has committed itself to creating a free trade zone between the U.S., Canada and Mexico. Why might this be important? Relative to imports and exports to other nations, what is the size of these two North American trading partners trade relationship with the U.S.?
The creation of the free trade zone between the U.S, Canada and Mexico is important because they created a trade bloc agreement so that goods are manufactured with eliminated trade barriers. The U.S and Canada are the number trading partners in the world. The U.S exports about 19.4 % of goods to Canada and import about 14.2%. The relationship Mexico has with the United States is also very popular, the U.S imports about 11.8% in goods and export about 12.8% in goods.
2. What is the law of comparative advantage, and why is it important in international trade?
The law of comparative advantage takes place when either a country or an individual produces a good or service at a lower opportunity cost than other countries. Comparative advantage is important in international trade because both parties can benefit from an exchange of goods and services because they both can produce and consume a combination of two goods despite what would have been attainable.
3. At one time, it was believed that the way for a nation to prosper was to export as much as possible while importing as little as possible. More money would flow into a country than out of a country. Is this really a sound economic strategy? What is the relationship between exports and imports?
It is not a good economic strategy because there would be no trade in the world. World trade benefits both the consumer and producer. Therefore the relationship between exports and imports is necessary for the world market because it benefits the equilibrium price and equilibrium quantity for both the domestic and world economy.
4. Suppose that in the absence of trade, the U.S. price for bicycles was higher than the world price for...