The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 33-3
-Refer to Figure 33-3.Consider the Canadian producers of towels currently in a free -trade situation in this market who then choose to lobby the government for protection of their industry.Suppose you are an advisor to this industry and are asked to recommend whether they should lobby for a tariff of $ t per unit or an import quota of (Q3 - Q2) .What should you recommend if the producers want to increase their revenues?
A) The tariff - their revenues will be higher.
B) The import quota - their revenues will be higher.
C) The tariff - the domestic producers will receive all of the revenue previously accruing to foreign suppliers.
D) Either - it makes no difference to their revenues either way.
E) Neither - their revenues will not increase with a tariff or an import quota.
Correct Answer:
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