Homework4

What happens to the long-run distribution of income when US firms decide to open factories in Mexico?

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Getting a proper view of the scenario calls for a theory that assesses factors that amplify the dimensions of financial inequalities. It involves explaining labor earnings, income, and wealth as a result of moving to manufacture in Mexico. As a matter of fact, these elements are already unequally distributed. It is nearly impossible to achieve perfectly distributed income owing to a difference in resource distribution, and differing education and skills level. Nonetheless, income disparities continue to grow in the US. Labor earnings and consequently income has a much greater hand in moving household up to the economic scale than wealth.

Opening shop across the border in Mexico would mean that individuals in the lower part of the income distribution would further receive a smaller share of total income in the long run. This could attribute to the mere fact that they are unlucky or that the new roles left in the US would call for individuals that have invested in their careers and therefore have higher skills. Additionally, households at the top of the income distribution would further receive a greater share of the total income for the simple fact that they are able to take advantage of unforeseen market forces.

What would be the difference if plant opened on the US side of the border but Mexicans were allowed to cross over for work?

Allowing the Mexican across the border would an increase in both skilled and unskilled labour for the manufacturing industries. Providing the market with an alternative means that the market household income and disposable household income would still go down like it had when it would have if the firms moved across the border into Mexico. In addition, it would still mean competition to limited income generating opportunities. In effect, there still would be a decrease in income share for those in the lower part of income distribution and an increase of the income share for those at the top.

Consequences for the US if an FTA was formed for North, Central, and South America

Fewer trade barriers in these regions would mean enhance integration and industry location, and as a consequence, the environment is affected owing to the enhanced economic activity. Also, a more diverse composition of economic activity and change in production techniques would also hurt the environment. Additionally, trade liberalization would call for greater technological advancement in efforts to achieve greater specialization in manufacturing activities.

Custom union

Owing to the operation of a customs union, this form of a free trade agreement would have little to no effect on the United States owing to its vastness. Literally, a few goods would land on transit to other countries.

Common Market

First consequence would be the cost of legislation in order to adjust to a common rule across the regions. A single market would mean more regulations to the already existing federal and state ones. However, in benefits, the common market would bring with it increased trade. It could also divert trade from better and more efficient non-regional markets.

Monetary union

Inflation differentials will be persistent in the US alongside other member countries. Nonetheless, a common currency could contribute greater economic integration however, US strong economic linkages with the rest of the world would suffer a setback. The