The Canadian Parliament is considering imposing a tariff on the importation in Québec of bicycles made...

The Canadian Parliament is considering imposing a tariff on the importation in Québec of bicycles made in France in order to protect its cycle industry. Let us further assume that Québec is considered to be a “small country” in this industry. At present, there is no tariff or other import barrier. Canada (all provinces) produces 1.0 million bikes a year and imports another 0.4 million bikes a year. Currently, the world price of bicycles is $400 a unit. Parliament wants to impose a $40 import tariff per bike.

To conduct this analysis, redraw Figure 8.4 of Pugel’s book, as a starting point. Choose carefully the slopes of the supply and demand curves. Remove the book’s numbers and put in the numbers given here.

1. Consumer surplus

2. Producer surplus

3. Government revenue

4. Net national loss from the tariff

5. Effective rate of protection if in addition to the proposed tariff on bikes, there is also a 5% tariff on inputs (frame, gears, etc.)

6.Maximum net national loss and under which circumstances

7.Minimum net national loss and under which circumstances

8.Do you recommend Parliament to go ahead with their plan? Why or why not

Expert Solution

Rahul Sunny answered 2 years ago

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