Suppose Canada has a 12- percent tariff on foreign- made cotton clothing. If the tariff is raised to 20 percent, there will be a in the Canadian price of cotton clothing, profits for domestic producers, and _ in deadweight loss.

Question

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If the tariff is raised, the price of foreign-made cotton clothing will rise for Canadian consumers, leading to an increase in the Canadian price of cotton clothing. With the higher tariff, domestic producers will see their profits increase as they face less competition from foreign producers. However, the increase in the tariff will also lead to an increase in deadweight loss as consumers will now face higher prices for cotton clothing, leading to a reduction in overall welfare. Choice C is the only option that correctly identifies a rise in the Canadian price of cotton clothing, an increase in profits for domestic producers, and an increase in deadweight loss.

Suppose Canada Has a 12- Percent Tariff on Foreign- Made