In the absence of international trade, assume that the equilibrium price and quantity of motorcycles in Canada is $14,000 and 10 units respectively. Assuming that Canada is a small country that is unable to affect the world price of motorcycles, suppose its market is opened to international trade. As a result, the price of motorcycles falls to $12,000 and the total quantity demanded rises to 14 units; out of this total, 6 units are produced in Canada while 8 units are imported. Now assume that the Canadian government levies an import tariff of $1,000 on motorcycles. With the tariff, 8 units are produced in Canada and quantity demanded is 12 units.
-Refer to Exhibit 4.2.All of the import tariff is shifted to the Canadian consumer via a higher price of motorcycles.

Question

Quizplus · Accepted Answer

The scenario described indicates that after the imposition of the import tariff, the quantity demanded decreases and the quantity produced domestically increases, suggesting that the price of motorcycles has likely increased due to the tariff. This implies that the cost of the tariff has been passed on to the consumers in the form of higher prices.

In the Absence of International Trade, Assume That the Equilibrium