The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is P_W.Assume that all cotton towels are identical.

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is P<sub>W</sub>.Assume that all cotton towels are identical. FIGURE 33-3 Refer to Figure 33-3.Consider the Canadian producers of towels currently in a free-trade situation in this market.Now suppose the producers have successfully lobbied the government for protection for their industry.Suppose you are an advisor to the government and are asked to recommend whether they should impose a tariff of $t per unit or an import quota of ( - ).What should you recommend? A)The import quota - the deadweight loss to the economy as a whole is smaller than with the tariff. B)The tariff - the tariff revenues are collected by the government,rather than going to the foreign producers. C)The tariff- the domestic producers will receive all of the revenue previously accruing to foreign suppliers. D)Either - it makes no difference to the overall economy either way. E)The import quota - revenues accruing to domestic producers will be higher than with the tariff,which is better for the overall economy.

FIGURE 33-3 Refer to Figure 33-3.Consider the Canadian producers of towels currently in a free-trade situation in this market.Now suppose the producers have successfully lobbied the government for protection for their industry.Suppose you are an advisor to the government and are asked to recommend whether they should impose a tariff of $t per unit or an import quota of (

).What should you recommend?
A)The import quota - the deadweight loss to the economy as a whole is smaller than with the tariff.
B)The tariff - the tariff revenues are collected by the government,rather than going to the foreign producers.
C)The tariff- the domestic producers will receive all of the revenue previously accruing to foreign suppliers.
D)Either - it makes no difference to the overall economy either way.
E)The import quota - revenues accruing to domestic producers will be higher than with the tariff,which is better for the overall economy.

A Common,but Invalid Argument for Using Tariffs to Maximize National

Multiple Choice

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge