Free Trade Zone Essay

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Free trade zones creation will significantly improve the United States’, Canada’s and Mexico’s Gross Domestic Product, (GDP). This is because all trade barriers will be eliminated between the three nations. Consequently, the law of comparative advantage will be greatly utilized as each country tries to produce commodities which have the lowest cost. This leads to an increase in the living standards of the citizens in the countries that encourage free trade zones creation. For instance, Chile’s statistics shows that its poverty level decreased from forty five percent in 1987, to fourteen percent in 2006, (45%-14%), as a result of falling trade barriers. The free trade zone agreement between the United States, Canada and Mexico was implemented…show more content…
The law states that a country has comparative advantage, if it can produce a commodity at the lowest cost possible compared to other countries who are key players in the competitive industry. This implies that if a country is more efficient in a certain line of production in terms of costs than another state, then it’s said to have a comparative advantage benefit. Countries that engage in the international trade use opportunity cost to determine the comparative advantage they have over another. Therefore, the law of comparative advantage is very important in international trade. This is because it enhances variations of factors of production, which are the main causes of international trade. Consequently, factors of production are efficiently utilized based on the least cost and opportunity cost benefits, using the law of comparative advantage as the guiding…show more content…
With The United States’ bicycles prices being higher than the world price, allowing international trade with a free trade policy would result in higher imports of bicycles that are cheaper into the United States’ markets. Consequently, the United States’ consumers would gain more than the producers as they will have a variety to choose e from interns of product specifications and prices as well. On the other hand, the United States government may decide to introduce tariff policies to avoid negative trade balances due to higher imports than exports. In addition, they may use the law of comparative advantage to measure their opportunity costs against the world producers of bicycles to gain a competitive
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