Question

international trade — end of chapter problem
the proponents of the free trade agreement between the united states, mexico, and canada argued that it would raise the average living standards of people in the united states.

identify the reason or reasons why the creation of nafta could lead to lower consumer prices and job creation in the united states.
☐ industries in which the united states has a higher opportunity cost relative to mexico and canada will likely grow, thereby creating more jobs in the united states.
☐ industries in which the united states has a comparative advantage will likely grow, thereby creating more jobs in the united states.
☐ mexico and canada are likely to produce some consumer goods previously produced in the united states at a lower opportunity cost. as a result, american consumers will pay lower prices for these goods.
☐ mexico and canada are likely to have higher opportunity costs than the united states in the production of some consumer goods. as a result, american consumers will pay higher prices for these goods.

Explanation:

1. Analyze the first option: Industries with higher opportunity cost for the US (vs Mexico/Canada) would not grow (since comparative advantage is about lower opportunity cost), so this is wrong.
2. Analyze the second option: Industries where the US has a comparative advantage (lower opportunity cost in production) will expand as they can export more, creating jobs. This is correct.
3. Analyze the third option: If Mexico/Canada produce some goods at lower opportunity cost, the US can import them, leading to lower consumer prices (as these goods are cheaper to get from abroad). This is correct.
4. Analyze the fourth option: If Mexico/Canada had higher opportunity costs, the US would produce those goods, but this option says consumers pay higher prices, which is not related to NAFTA's benefit of lower prices from trade. So this is wrong.

Answer:

B. Industries in which the United States has a comparative advantage will likely grow, thereby creating more jobs in the United States.
C. Mexico and Canada are likely to produce some consumer goods previously produced in the United States at a lower opportunity cost. As a result, American consumers will pay lower prices for these goods.