The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
-Refer to Figure 34- 2.Suppose Canada has free trade in jeans.If Canada initially has no tariff on jeans but then imposes a tariff of $t per pair,Canada's imports will

Question

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
  FIGURE 34- 2
-Refer to Figure 34- 2.Suppose Canada has free trade in jeans.If Canada initially has no tariff on jeans but then imposes a tariff of $t per pair,Canada's imports will

Quizplus · Accepted Answer

When Canada initially has no tariff on jeans, it imports Q5 - Q1 amount of jeans (the difference between the quantity demanded and the quantity supplied at the world price).

If Canada imposes a tariff of $t per pair, the domestic price will increase by the amount of the tariff, to Pw + t. The new quantity demanded at this higher price will be Q3, and the new quantity supplied will be Q4. The difference between the quantity supplied and demanded at the higher price is (Q4-Q3).

Since Canada now produces more jeans domestically (Q4) and demands fewer jeans at the higher price (Q3), its imports will decrease from (Q5-Q1) to (Q4-Q2). Therefore, the correct choice is C.

The Diagram Below Shows the Domestic Demand and Supply Curves