With the aid of an appropriate economic model(s) explain how the imposition of new tariffs on...
With the aid of an appropriate economic model(s) explain how the imposition of new tariffs on imports of Canadian goods in the US are likely to affect the demand for international (transborder) transportation.
Homework Answers
Tariff on import of Canadian goods will increase the price of Canadian good in US market, lowering its demand. Consequently, demand for transborder transportation will fall, shifting its demand curve leftward, decreasing both price and quantity of transborder transportation.
In following graph, D0 and S0 are initial demand and supply curves of transborder transportation, intersecting at point A with initial price P0 and quantity Q0. As demand for transborder transportation falls, D0 shifts left to D1, intersecting S1 at point B with lower price P1 and lower quantity Q1.
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