Consider the following variation of Table 9-1 for the U.S. semiconductor market:
ID: 2506018 • Letter: C
Question
Consider the following variation of Table 9-1 for the U.S. semiconductor market:
a. Fill in the values for W, X, Y, and Z.
b. Suppose that before NAFTA, the United States had a 20% tariff on imported semiconductors. Which country supplied the U.S. market? Is it the lowest-cost producer?
c. After NAFTA, who supplies the U.S. market? Has either trade creation or diversion occurred because of NAFTA? Explain.
d. Now suppose that before NAFTA, the United States had a 10% tariff on imported semiconductors. Then repeat parts (b) and (c).
e. In addition to the assumptions made in (d), consider the effect of an increase in hightechnology
investment in Canada due to NAFTA, allowing Canadian firms to develop better technology. As a result, three years after the initiation of NAFTA, Canadian firms can begin to sell their products to the United States for $46. What happens to the U.S. trade pattern three years after NAFTA? Has either trade creation or diversion occurred because of NAFTA? Explain.
Please help me on each of these questions - greatly appreciated.
U.S. TARIFF 0% 10% 20% From Canada, before NAFTA $46 $W $55.20 From Asia, before NAFTA $42 $X $Y From Canada, after NAFTA $46 $Z $Z From Asia, affter NAFTA $42 $X $Y From the United States $47 $47 $47Explanation / Answer
Consider the following variation of Table 11-1 for the U. S. semiconductor market. U.S. Tariff 0% From From From From From Canada, before NAFTA Asia, before NAFTA Canada, after NAFTA Asia, after NAFTA the United States 10% 20% $46 $42 $46 $42 $47 $W $X $Z $X $47 $55.2 $Y $Z $Y $47
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a. Fill in the values for W, X, Y, and Z.
Answer: W $50. 6, X $46. 20, Y $50. 40, Z $46
b. Suppose that before NAFTA the United States had a 20% tariff on imported semiconductors. Which country supplied the U. S. market? Is it the lowest cost producer?
Answer: Before NAFTA, the least expensive option for U. S. consumers was the domestically produced semiconductor, even though the lowest cost producer (net-of-tariff) was Asia.
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c. After NAFTA, who supplies the U. S. market? Has either trade creation or diversion occurred because of NAFTA?
After NAFTA, the least cost producer becomes Canada. Semiconductors from Canada now cost $46, which is less than the cost of producing domestically, $47. This is an example of trade creation.
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d. Now suppose that before NAFTA, the United States had a 10% tariff on imported semiconductors. Then repeat parts (b) and (c). Answer: If the United States had a 10% tariff, before NAFTA the United States would import semiconductors from Asia at a cost of $46. 20. In this case, Asia is the lowest cost producer, so despite the tariff, the most efcient country is producing semiconductors. However, after NAFTA, the cost of importing semiconductors from Canada drops from $50. 60 to $46, which means that the United States will stop importing from Asia (the lowest cost producers). This is an example of trade diversion.
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