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SupplementalHandout_Ch2_CompAdvAndTrade_

SupplementalHandout_Ch2_CompAdvAndTrade_ - always net gains...

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X-Tream ECONOMICS Harnessing the Power of Incentives RATIONALITY RULES Econ 2 / Penn State Prof. Misty Ann Stone Supplemental Handout There CAN BE a FREE LUNCH Chapter 2 in Miller Answers to Questions for Thought Questions for thought: 1. Read the attached Candy Cane article. (Additional Statistics: Sugar is $0.06 in Mexico compared to $0.21 in the U.S. The shift to Mexico saves the firm about $2.7 million per year on sugar costs.) Who gains and who loses when the U.S. limits the import of sugar? Gains: Domestic producers of sugar. Loses: Domestic consumers of sugar, such as in the candy industry, and foreign producers of sugar. 2. What are the arguments for NAFTA (North American Free Trade Agreement)? Against NAFTA? If you’d like a definition of NAFTA, go here: http://www.economist.com/research/Economics/alphabetic.cfm . For free trade: There are
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Unformatted text preview: always net gains from trade. However, there may be specific losers for specific policies. Generally, the groups opposed to trade agreements are those who produce a domestic produce for which the U.S. does not have the comparative advantage. There may also be other arguments against free trade: some people lose their jobs (those in domestic industries for which the U.S. does not have the comparative advantage), culturally, some may desire to injure the economies of those countries that they consider enemies, etc. 3. Outsourcing occurs when a firm hires labor outside of the domestic country. Do you think that the same arguments can be made about policies limiting outsourcing as can be made about policies limiting trade? Why or why not? Yes. Those who lose jobs are injured and consumers of the product gain....
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