Consider the Canadian market for residential aluminum siding, a relatively standardized productThe graph at right shows a competitive market for Canadian beer.

Suppose that there is no international trade. The equilibrium price will be $ and the equilibrium

quantity will be

thousand cases.

Now suppose that Canada is open to trade with the rest of the world. At the world price of $$20,$ the

domestic supply will be thousand cases, the domestic consumption will be thousand

cases.

If the world price of beer is $$20,$ then Canada would

thousand cases of beer.

sold in competitive markets and shown in the accompanying diagram. Suppose the world price is

$$8$ per square foot and, at this price, Canada imports $600,000$ standard bundles of siding per

month. In response to lobbying by Canadian producers, the federal government decides to protect

the industry$-$either with a tariff or with an import quota. $($Suppose that each standard bundle

contains $100$ square feet of siding.$)$

a$.$ If the Canadian government imposes a tariff of $50$ percent on imported siding, then Canadian

production will

bundles per month, Canadian consumption will

bundles per month, and the price within Canada will

$\frac{?}{\text{b}\text{a}\text{r}}(grad)$

$!$

per square foot.

$($Round quantities to the nearest whole number. Round the price to the nearest cent as needed.$)$

b$.$ The tariff revenue in the situation in part $($a$)$ will be $

$.($Round to the nearest whole number

as needed.$)$

c$.$ Now suppose that, instead of imposing a tariff, the Canadian government restricts the import of

aluminum siding to $300,000$ bundles per month. Compared to the situation without tariffs,

Canadian production will

bundles per month, Canadian consumption

will

bundles per month, and the price within Canada will

$($Round quantities to the nearest whole number as needed. Round the price to the nearest cent

as needed.$)$

d$.$ The tariff revenue in the situation in part $($c$)$ will be $$,.($Round to the nearest whole number

as needed.$)$

e$.$ Compared to using tariffs to protect a domestic industry, using import quotas to protect a

domestic industry results in

consumer surplus,

producer surplus, and

government tax revenue. In terms of total economic surplus,

better for Canada.