Exhibit 4.2 In the Absence of International Trade,assume That the Equilibrium Price

question 34

True/False

Exhibit 4.2
In the absence of international trade,assume that the equilibrium price and quantity of motorcycles in Canada is $14,000 and 10 units respectively.Assuming that Canada is a small country that is unable to affect the world price of motorcycles,suppose its market is opened to international trade.As a result,the price of motorcycles falls to $12,000 and the total quantity demanded rises to 14 units; out of this total,6 units are produced in Canada while 8 units are imported.Now assume that the Canadian government levies an import tariff of $1,000 on motorcycles.
-Refer to Exhibit 4.2.The tariff's redistribution effect equals $7,000.

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