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Canadian Economy and Equilibrium Price

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3. The United States is proposing a significant increase in duty on Canadian softwood lumber. Use appropriate diagrams to answer the following questions about the Canadian economy. (20 marks)
(a) How would higher duty on softwood lumber affect the equilibrium income and the price level in the short run?
(b) How would higher duty on softwood lumber affect the equilibrium income and the price level in the long run? What assumptions did you make to arrive at this answer?
(c) The Canadian finance minister has just announced a significant increase in government (program) spending. Wifi this help to offset the impacts of duty on softwood lumber? Why or why not?
(d) In (c) above, what will happen to inflation? Explain.

-please show appropriate diagrams when answering this question
-see attachment for full question details

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The solution discusses Canadian Economy and Equilibrium prices versus the United States.

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3. The United States is proposing a significant increase in duty on Canadian softwood lumber. Use appropriate diagrams to answer the following questions about the Canadian economy. (20 marks)
(a) How would higher duty on softwood lumber affect the equilibrium income and the price level in the short run?
(b) How would higher duty on softwood lumber affect the equilibrium income and the price level in the long run? What assumptions did you make to arrive at this answer?
(c) The Canadian finance minister has just announced a significant increase in government (program) spending. Will this help to offset the impacts of duty on softwood lumber? Why or why not?
(d) In (c) above, what will happen to inflation? Explain.

Effects of a Duty: The general impact of a duty is to reduce U.S. demand for Canadian softwood lumber. Generally, the price impact of a tariff will be shared between the importer and exporter. How much the consumer price rises compared to the drop in the producer price depends on the ...

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