Suppose that at the current world price bananas are imported into Canada. Suppose also that domestic supply is perfectly inelastic and domestic demand has unit elasticity. If Canada were to place a tariff on imported bananas, the

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Since domestic supply is perfectly inelastic, the quantity supplied in Canada will not change regardless of the change in price. Domestic demand has unit elasticity, meaning a 1% increase in price will result in a 1% decrease in quantity demanded. Therefore, the tariff will cause the price of bananas in Canada to rise, but the total domestic expenditures (the price paid for the same quantity of bananas) will be unaffected. The quantity imported will also be unaffected since the tariff does not change the fact that bananas are still cheaper to import than produce domestically. The revenues of the foreign exporters of bananas may or may not rise depending on the size of the tariff and how it affects the demand for bananas in Canada.

Suppose That at the Current World Price Bananas Are Imported