An example of how trade diversion results in a suboptimal situation is auto parts trade between Mexico and the United States. After NAFTA:
a. Mexico decreased its sales of auto parts to the United States.
b. the United States purchased more auto parts from Mexico due to the elimination of tariffs and reduced purchases from East Asia, which was the lowest-cost producer.
c. the United States brought a complaint against Mexico for low quality auto parts.
d. the United States purchased fewer auto parts from Mexico due to the elimination of tariffs and increased purchases from East Asia, which was the lowest-cost producer.
Ans: b. the United States purchased more auto parts from Mexico due to the elimination of tariffs and reduced purchases from East Asia, which was the lowest-cost producer.
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Ken's Lawn Service Co operates in a perfectly competitive market. Why doesn't Ken try to increase his revenue by lowering his price below the prevailing market price?
a. He can sell as much as he wishes to at the market price. b. He faces a perfectly inelastic demand curve, so a price change will have no impact on revenue. c. Government regulations prevent it. d. If he lowers his price, he will lose all his sales since he faces a horizontal demand curve. e. Agreements with other lawn service companies require him to sell at the market price.
A Nash equilibrium is
A. the same as a dominant strategy. B. is the outcome where a player has selected her best strategy, given the choices of the other players. C. occurs in a game when a cartel solution is reached. D. occurs when one player can change her strategy and be better off.
Diversification
a. increases the likely fluctuation in a portfolio's return, but reduces market risk. b. increases the likely fluctuation in a portfolio's return, but reduces firm-specific risk.. c. reduces the likely fluctuation in a portfolio's return and reduces market risk. d. reduces the likely fluctuation in a portfolio's return and reduces firm-specific risk.
When consumers' purchasing power decreases, the economy will experience a period of
A. contraction. B. expansion. C. containment. D. emergence.