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Unformatted text preview: autarky production and consumption bundles chosen. b) Which country has a lower opportunity cost of producing hats? Justify. Which country has a comparative advantage in the production of Shoes?. Justify c) Suppose that before NAFTA (the North American Free Trade Agreement, signed between the US and Mexico in 1993), the US and Mexico did not trade these two goods. What was the relationship between the autarky relative prices of Shoes (P S /P H ) in the US and Mexico? d) Suppose that after the NAFTA agreement was signed and free trade occurs between the two countries, the world relative price of Hats is 1.5 (i.e. P H /P S = 3/2 =1.5). ( I ) What is the pattern of trade? ( ii ) Did the US and Mexico enjoy welfare improvements or losses after NAFTA? (Use a diagram for each country to respond to this question)....
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This note was uploaded on 08/08/2008 for the course ECON 464 taught by Professor Maria during the Spring '08 term at Wisconsin.
- Spring '08