The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical.
TABLE 33-1
-Refer to Table 33-1.Assume there is free trade in cheddar cheese and Canada imports the lowest price cheese from the United States.If a 40% tariff is then imposed on U.S.imports,Canada would be likely to purchase its cheese from ________.This situation would be one of ________.

Question

The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical.
  TABLE 33-1
-Refer to Table 33-1.Assume there is free trade in cheddar cheese and Canada imports the lowest price cheese from the United States.If a 40% tariff is then imposed on U.S.imports,Canada would be likely to purchase its cheese from ________.This situation would be one of ________.

Quizplus · Accepted Answer

After the 40% tariff on U.S. imports, Canada would likely switch to purchasing cheddar cheese from the United Kingdom, which previously had a higher price than the U.S. This is an example of trade diversion, where a new trade agreement diverts trade from cheaper, more efficient producers to less efficient ones that happen to be located within the trading bloc.

The Table Below Shows the Prices in Canada of One