3.4 Canada has 20% of the world’s known freshwater resources, yet many Canadians believe that the country has little or none to spare. Over the years, U.S. and Canadian firms have struck deals to export bulk shipments of water to drought-afflicted U.S. cities and towns. Provincial leaders have blocked these deals in British Columbia and Ontario. Use graphs to show the likely outcome of such an export ban on the price and quantity of water used in Canada and in the United States if markets for water are competitive.

Show the effects on consumer and producer surplus in both countries. Show that if the importing country faces an upward-sloping foreign supply curve (excess supply curve), a tariff may raise welfare in the importing country.