Nafta and the Effects That It Has Had on the Canadian Economy
In the country that I have been researching, there have been many economic ruts. Canada has gone through tons of hardships such as droughts, depression, and most recently the current housing bubble crisis. With all said and done, there has been no greater impact on the Canadian economy and way of life like the implementation of the North American Free Trade Agreement (NAFTA). Throughout my paper, I will be explaining and giving insight on the effects that NAFTA has had on the Canadian economy; Both the good and the bad. I will be describing the background of how NAFTA came to be, as well as presenting examples of the different ideas behind the whole “international free trade”
A helpful way to understand the whole concept of International free trade is that it is primarily based on the idea of comparative advantage. A country has the comparative advantage of the production of a good when the opportunity cost of producing that good is lower relative to the other country. According to the Ricardian Model in an economy with two goods each country will produce both of those goods at some point along their production possibilities frontier in autarky. (Engardio) The labor in each country is divided into the production of each good and the marginal product of labor is determined by the level of technology. Levels of technology differ across countries thus no-trade prices differ as well. These differences in prices create an incentive for countries to trade. For example, let’s say Canada and the United States both only produced two goods; chairs and cars. The cost of producing one chair in the United States is one car. The cost of producing one chair in Canada is ½ a car. This means that Canada has the comparative advantage in the production of chairs. Conversely the cost of producing one car in Canada is two chairs as opposed to one chair in the United States. The U.S. has comparative advantage in the production of cars. When these two countries open to trade Canada
A helpful way to understand the whole concept of International free trade is that it is primarily based on the idea of comparative advantage. A country has the comparative advantage of the production of a good when the opportunity cost of producing that good is lower relative to the other country. According to the Ricardian Model in an economy with two goods each country will produce both of those goods at some point along their production possibilities frontier in autarky. (Engardio) The labor in each country is divided into the production of each good and the marginal product of labor is determined by the level of technology. Levels of technology differ across countries thus no-trade prices differ as well. These differences in prices create an incentive for countries to trade. For example, let’s say Canada and the United States both only produced two goods; chairs and cars. The cost of producing one chair in the United States is one car. The cost of producing one chair in Canada is ½ a car. This means that Canada has the comparative advantage in the production of chairs. Conversely the cost of producing one car in Canada is two chairs as opposed to one chair in the United States. The U.S. has comparative advantage in the production of cars. When these two countries open to trade Canada