Assume that Canada is an importer of smartphones and that there are no trade restrictions. Canadian consumers buy 1 million smartphones per year, of which 300 000 are produced domestically and 700,000 are imported.

Suppose that a technological advance among Japanese smartphone manufacturers causes the world price of smartphones to fall by $50. Draw a graph to show how this change affects the welfare of Canadian consumers and Canadian producers and how it affects total surplus in Canada. (5 marks)

After the fall in price, consumers buy 1.5 million smartphones, of which 200,000 are produced domestically and 1.3 million are imported. Calculate the change in consumer surplus, producer surplus, and total surplus from the price reduction. (5 marks)

If the government responded by putting a $50 tariff on imported smartphones, what would this do? Calculate the revenue that would be raised and the deadweight loss. Would it be a good policy from the standpoint of Canadian welfare? Who might support the policy? Who might oppose it? (5 marks)

Suppose that the fall in price is attributable not to technological advance but to a $50 per smartphone subsidy from the Japanese government to Japanese industry. How would this affect your analysis? (5 marks)