Use the following scenario to answer the questions that follow.
Suppose that Canada, an industrialized nation, and Mexico, a developing nation, both produce clothes and cars. The real wage in Mexico is lower than in Canada. The countries have a free-trade agreement. Each nation will find a comparative advantage.
-Which country's consumers will benefit from the free-trade agreement?

Question

Quizplus · Accepted Answer

Both countries will benefit from the free-trade agreement. Canada will specialize and export the good in which it has the comparative advantage (for example, cars), while Mexico will specialize and export the good in which it has the comparative advantage (for example, clothes). This specialization will lead to greater efficiency and ultimately lower prices for consumers in both countries. Even though Mexico has a lower real wage, it can produce clothes more efficiently than Canada, and therefore, will be able to sell them at a lower price to Canadian consumers.

Use the Following Scenario to Answer the Questions That Follow