Answer to Question #257778 in Microeconomics for AD37

Question

6. Most Canadian dairy farmers oppose free trade, and most Canadian lumber producers support it. For simplicity, assume that Canada is a small country in the markets for both milk and lumber, and that without free trade Canada would not trade these goods internationally. (Both of these assumptions are false, but they do not affect the qualitative responses to the following questions.) /4

a. Based on who opposes and who supports free trade, do you think the world milk price is above or below the Canadian no-trade milk price? Do you think the world lumber price is above or below the Canadian no-trade lumber price? Now analyze the welfare consequences of free trade for both markets.

 b. Considering both markets together, would free trade make Canadian producers as a group better off or worse off? Would it make Canadian consumers as a group better off or worse off? Does it make Canada as a whole better off or worse off? 

Answer 1

Question (a)

The world milk price is lower than the no-trade milk price in Canada. People will buy the cheaper milk since there is competition in the global market. Because of the short-run dynamics of demand and supply, lumber and plywood prices are at an all-time high. During the pandemic's summer, demand for wood increased dramatically.By allowing consumers to buy more, higher-quality products at lower prices, free trade boosts wealth for Americans—and inhabitants of other participating countries. It promotes economic growth, increased efficiency, increased innovation, and the increased justice that a rules-based society brings.

Question(b)

Everyone can benefit from trade."Trade permits each person to specialize in his or her area of expertise, whether it's farming, sewing, or home construction." Similarly, nations can specialize in their areas of expertise. People benefit from a greater selection of options at reduced prices in both circumstances.In terms of economic inequality, Canada has fared better than the United States, yet there are numerous troubling trends, such as the concentration of income and wealth among the country's wealthiest.