Final answer:
An increase of $100 billion in agricultural goods production due to trade between the United States and Canada typically leads to lower prices for those goods, as per the principles of comparative advantage and supply-and-demand economics.
Step-by-step explanation:
In the context of international trade, when the United States and Canada experience a $100 billion increase in the production of agricultural goods due to trade, this is called a gain from trade. The economic principle here is that trade allows countries to specialize in the production of goods for which they have a comparative advantage, meaning they can produce these goods at a lower opportunity cost relative to other goods. Trade typically results in the increased production and consumption of these goods.
So, when trade increases the total production of agricultural goods, we expect number 2) lower prices for agricultural goods, assuming all other factors are constant. The reason is that an increase in the supply of these goods will typically result in a reduction in the prices, up to the point where supply meets demand. The description of the trade between the United States and Brazil for sugar illustrates this principle: as Brazil exports sugar to the US, the increased supply in the US market leads to lower prices there. Conversely, the reduced supply in Brazil could lead to higher prices. However, the situation adjusts until the price equalizes, eliminating the incentive for further trade.
Thus, it is generally incorrect to say that an increase in the production of agricultural goods due to trade would lead to higher prices or a decrease in production (options 1 and 4). As for option 3, an increase in production due to trade can indeed change prices unless there is an equivalent increase in demand to absorb the additional supply.