The United States and Mexico recently negotiated a trade agreement tha

The United States and Mexico recently negotiated a trade agreement that eliminated many of the restrictions on trade between the two countries.

a. Using the tools of microeconomics, describe how such an agreement will benefit both the USA and Mexico.
b. Will everyone benefit from such an agreement? who stands to lose from such an agreement. Why?

ANSWER

a.
See section 16.5 of text.

b.
Not everyone will benefit from the elimination of trade restrictions. The US and Mexico will tend to specialize in the industries for which they have a comparative advantage. Therefore, some US industries will expand while others will contract and likewise for Mexico. The workers in the contracting industries in each country will lose from such an agreement.