Question

The US and Canada are in a bitter dispute over the trade of softwood lumber. The US claims that the royalties the Canadian government collects on lumber harvested on public land (stumpage fees) are too low and accuses Canada of dumping, the practice of selling goods abroad under cost. In response to these alleged practices, the US has introduced a tariff, called a countervailing duty, on softwood lumber imported from Canada. In two separate diagrams indifference curve diagrams, show the effects of such a tariff on a consumer who is indifferent between using US softwood lumber or Canadian softwood lumber (i.e. considers them perfect substitutes) and on another consumer who views the two types of lumber as imperfect substitutes.

Answer 1