Question #1
If the Board of Schmeckt Gut will convince the Government of Industria to make a free trade agreement with Atollia, there will be no tariffs. According to the regression equation, we have estimated in Module 4, the coefficient of tariffs is negative. Hence, if tariffs are applied, this leads to a decrease in the demand of our energy bars. Without tariffs, the demand will be increased. Since the demand will be increased, the supplier should increase the volume of production. This, in turn, leads to an increase in Schmeckt Gut’s labor demand, as it needs more employees to produce more energy bars. Hence, the labor demand of Schmeckt Gut will be increased under the conditions of free trade with Atollia.
Question #2
An increase in the Schmeckt Gut’s labor demand leads to the fact that more people in Industria will be employed. The unemployment rate will be decreased. An increase in the labor demand for Schmeckt Gut is also increases the wages of employees hired. Since the demand of our energy bars is increased after the tariffs cancellation, it will lead to an increase in the volumes of production sold abroad. This, in turn, results in the overall increase in the gross national product of the country. An increase of the GDP makes a positive impact on Industria’s economy, because it is an indicator of the improving in the standard of living in the country.
Thus, with the help of regression analysis we have concluded that the free trade agreement between the Government of Industrian and Atollia would be beneficial for Industria’s economy.
