The North American Free Trade Agreement Essay Example | Topics and Well Written Essays - 500 words

The North American Free Trade Agreement - Essay Example This means that at optimal labor utilization it can either produce, say 600 pounds of corn or 300 pounds of nuts. Meanwhile, Mexico is able to substitute the production of same products at the exchange ratio of . As such, it may choose to produce either 200 pounds of corn or 150 pounds of nuts. (Samuelson & Nordhaus, 2000) Upon opening up or liberalizing trade between the two nations, their initial production possibility curves, represented by the solid line, pivot. In case of the US, it could still produce 600 pounds of corn. However, with trading with Mexico, it may now end up with relatively more nuts using Mexico's price ratio. Similarly, Mexico ends up with the same quantity of nuts but this time it may end up with more corn as it traded with Mexico at the latter's price ratio. The above example exhibits the benefits derived by countries, particularly exporters and consumers, when countries open up to trade or undergo trade liberalization. According to the Foreign Agricultural Service (2005), sales of corn to Mexico and Canada increased by 175% with exponential increase in export value between 1993 and 2004. In this case, farmers are able to find overseas markets for their harvest, thus, enhancing their earnings potential.