Free Trade and the Economy of Canada Essay example -- Economics Global

Free Trade and the Economy of Canada Free trade is the act of exchanging goods or services between countries for minimal tariffs or fees. Between countries, this is a method of exchange that is gaining more and more popularity. By importing and exporting for low fees, free trade is an efficient way to cover up weaknesses in the country and gain on strengths. Free trade is a very controversial topic that is viewed upon differently by many people in many different countries. Some oppose free trade; they feel it will cause production losses or low employment in their country. Many countries also embrace it and believe it helps create a strong and healthy nation. They join in free trade organizations or draft free trade agreements with other countries to try and capitalize on the potential benefits. In Canada, free trade with other countries is embraced and as a direct result, both business and consumers experience great economic and social prosperity. Ask any economist and they will tell you one of their main principles, which they rely on as if it were a verse from the bible, is: â€Å"free trade makes everyone better off (Mankiw, Kneebone, McKenzie & Rowe 9). To explain this, the terms opportunity cost and comparative advantage must first be defined. The opportunity cost of an item is whatever that must be given up to attain that item (Mankiw, Kneebone, McKenzie & Rowe 53). For instance, if you are a farmer and decide to harvest corn all today, you are deciding not to feed the chickens or milk cows. Thus, the opportunity cost to attain corn would be the milk or eggs that you cannot gather. When producing goods, each country has an opportunity cost for an item. They cannot produce every single item they want; some good must be given up in order to attain other goods. For example, Canada may have the decision on whether they should allocate resources to manufacture 500 computers or 1 car. The opportunity cost for one computer wou ld be the number of cars that can be produced divided by the number of computers that can be produced, which is 0.002 cars. Alternatively, the opportunity cost for one car would be the number of computers divided by the number of cars, which are 500 computers. Consider also, for instance, that another country, Japan, could produce 1000 computers for every 1 car. Then, Japan’s opportunity cost for computers would be 0.001 cars. When com... ...her developed countries. Free trade must be continually embraced in Canada for businesses and consumers to continue enjoying the high economic and social prosperity that is currently occurring. Works Cited: Bhagwati, Jagdish, â€Å"The Pure Theory of International Trade: A Survey†, The Economic Journal, Vol   Ã‚  Ã‚  Ã‚  Ã‚  74, No. 293, Mar 1994. pp. 1-84 BBC News, The Argument for Free Trade, http://news.bbc.co.uk/1/hi/special_report/1999/11/99/battle_for_free_trade/533208.stm, Feb 12, 2003 Bureau, Jean-Christophe, Salvatici, Luca, â€Å"WTO Negotiations on Market Access in Agriculture: a Comparison of Alternative Tariff Cut Proposals for the EU and the US†, Topics in Economic Analysis & Policy, Vol 4, Issue 1, March 26, 2004, pp 1152 International Trade Canada, Canada’s Trade Negotiations and Agreements, http://www.dfait-maeci.gc.ca/tna-nac/menu-en.asp, Nov 18, 2004 Mayer, Frederick, Interpreting NAFTA, Colombia University Press, Oct 15 1998 Mankiw, Kneebone, McKenzie & Rowe, Principles of Microeconomics 2nd Edition, Prentice Hall, 5th Edition, Jul 27, 2000 Murphy, Robert P., Who Benefits From Free Trade, and How, http://www.mises.org/fullstory.aspx?control=1429, Jan 23, 2004