Suppose that Canada produces 1.0 million bicycles a year and imports another

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QUESTION:

Suppose that Canada produces 1.0 million bicycles a year and imports another 0.4 million; there is no tariff or other import barrier. Bicycles sell for $400 each.

* Parliament is considering a $40 tariff on bicycles like the one portrayed in Figures 8.2 through 8.4. What is the maximum net national loss that this could cause Canada? What is the minimum national loss if Canada is a small country that cannot affect the world price? (Draw a diagram like a Figure 8.4 and put the numbers given here on it. Next, imagine the possible positions and slopes of the relevant curves.)

Figure 8.2: The Effect of a Tariff on Domestic Producers


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