Thursday, October 4, 2012

US-Mexico Trade Dispute over Tomatoes

The New York Times reports that the US is considering changing the rules for international trade of tomatoes with Mexico.  Immediately, Mexico said that it would change the rules for international trade of pork (among other products).

As presented in Prin. of Microeconomics, trade restrictions (leading to higher prices) will result in an overall decline in economic well-being (what economists call economic welfare).  This is a clear case of exactly that.  Here consumers will be worse off having to pay higher tomato prices and tomato producers will be better off by getting to charge higher prices.  Unfortunately the gains to the producers will not offset the loss to the consumers due to the higher prices leading to less consumed/produced. 

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