Review
4. Canada produces steel domestically and also imports it from
abroad. Assume that the world market for steel is competitive and
that Canada is a small producer, unable to affect the world price.
Since Canada imports steel, we know that in the absence of trade,
the Canadian equilibrium price would exceed the world price.
a. Draw a diagram showing the Canadian market for steel,
with imports at the world price.
b. Explain why the imposition of a tariff on imported steel
will increase the price of steel in Canada.
c. Who benefits and who is harmed by such a tariff? Show
these effects in your diagram.
5. The diagram below shows the Canadian market for leather shoes,
which we assume to be competitive. The world price is. If the
Canadian government imposes a tariff of t dollars per unit, the
domestic price then rises to.pwpw+t