Which of the following is a good example of how trade agreements encourage globalization?

• A. A government restricts foreign investment in its domestic markets.
• B. The North American Free Trade Agreement (NAFTA) reduces tariffs between the US, Canada, and Mexico, increasing cross-border trade.
• C. Local businesses refuse to export their products to other countries.
• D. A country imposes high tariffs on imported goods to protect domestic industries.

Answer: (B)

Verified step by step guidance

1. Understand the concept of globalization in microeconomics, which refers to the increasing integration and interdependence of national economies through trade, investment, and the movement of goods and services across borders.
2. Recognize that trade agreements are designed to reduce barriers to trade, such as tariffs, quotas, and restrictions on foreign investment, thereby facilitating easier and increased cross-border economic activity.
3. Analyze each option by identifying whether it promotes or restricts international trade and investment. For example, restricting foreign investment or imposing high tariffs generally discourages globalization.
4. Identify that the North American Free Trade Agreement (NAFTA) reduces tariffs between member countries (US, Canada, and Mexico), which lowers the cost of trading goods and services across borders and encourages economic integration.
5. Conclude that the example involving NAFTA best illustrates how trade agreements encourage globalization by promoting freer trade and investment among countries.