Additional Application Prior to 2001 Canada Annually Exported Billions of Board Feet

question 84

Multiple Choice

Additional Application
Prior to 2001 Canada annually exported billions of board feet of lumber to the U.S.tariff-free.The two countries had followed an agreement in which there would be no restrictions on the lumber from Canadian companies.In March 2001 the agreement ended and in 2002 the U.S.imposed tariffs and duties on imported Canadian lumber.What were the effects of these changes and who gained and who lost?
The forestry workers of Canada were hurt.About 15,000 workers lost their jobs in British Columbia and many Canadian towns suffered from the loss of income from lumber sales and related industries.Exports to the U.S.fell from 14.7 billion board feet in 2000 to 20.9 million board feet in 2004.When the lumber prices rose in the U.S. ,the costs of production for home building firms increased.
The U.S.government has realized $3.5 billion from the tariffs and that is sitting in the Treasury awaiting resolution of legal disputes.Lumber companies in the U.S.have seen their prices rise with less competition.
James Thayer,"Soft Wood,Hard Dispute," The Weekly Standard,November 18,2005.Online
-According to this application about the U.S.imposing tariffs on lumber from Canada,after the tariffs were placed on Canadian lumber imports,we could expect the consumer surplus in the U.S.to:

• A)increase.
• B)decrease.
• C)remain unaffected.
• D)none of these

Recognize the impact of changes in cost structures and sales on the break-even point and profitability.

Understand the concept of operating leverage and its effects on profitability.

Calculate the margin of safety and understand its importance in assessing business risk.

Differentiate between variable costing and absorption costing and their impact on profitability.

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Definitions:

Taxes Payable

Liabilities owed to the government or other authorities, usually within one year, arising from taxable activities or transactions.

Fixed Asset Accounts

Financial accounts that track the purchase, depreciation, and disposal of long-term assets that have a physical form and are used in the operations of a business.