Suppose Canada Has a 20% Tariff on the Import of Carpets,and

question 82

Multiple Choice

Suppose Canada has a 20% tariff on the import of carpets,and Canada currently imports this product from India at a with-tariff price of $22.The with-tariff price of identical carpets from the United States is $24.Now suppose a free-trade agreement with the U.S.eliminates the tariff and so the no-tariff price from the U.S.is $20.Canada now purchases carpets from the U.S.Is Canada made better off from this trade diversion?

• A)No,because it would still be cheaper for individual consumers to buy carpets from India.
• B)Canada is not better or worse off.The gain in consumer surplus in Canada is identical to the loss in tariff revenue to the Canadian government.
• C)Yes,because Canadian consumers are paying less for carpets and consumer surplus has increased.
• D)No,because before the agreement Canada was buying from India at a lower (pre-tariff)price and collecting tariff revenue.
• E)Yes,because Canada has diverted trade toward the United States.

---

Definitions:

Secured

Protected by collateral or a guarantee, often referring to loans or obligations.

Unregistered Mortgage

A mortgage that has not been formally recorded with the relevant legal or government authorities, potentially affecting its enforceability.

Default

The failure to fulfill a legal obligation, such as not making a payment on a loan.

Equity of Redemption

The right of a borrower to reclaim property put up as collateral after clearing their debt, especially in relation to mortgage agreements.