a. Suppose Canada imposes a 20 percent tariff on imported
towels from any country. Assuming that Canadians
purchase only the lowest-price towels, from which
country will Canada buy its towels?
b. Now suppose Canada eliminates tariffs on towels from all
countries. Which towels will Canada now buy?
c. Canada and the United States now negotiate a free-trade
agreement that eliminates all tariffs between the two
