U.S. Open to New Lumber Talks with Canada

EconEye Admin

4 years ago

The United States is open to negotiation with Canada to resolve a dispute over U.S. tariffs on softwood lumber. U.S. homebuilders have clamored for the Biden administration to remove the duties on Canadian softwood lumber that range from 6.75% to 20.24%—reuters.com

Answer the following questions to check your understanding of the story.

1) How would the removal of the U.S. tariff on softwood lumber change the price of softwood lumber in the United States and the quantity of U.S. imports?

With removal of the U.S. tariff on softwood lumber, the price of softwood lumber in the United States ______________, and the quantity of lumber imported ______________.

a) rises to the world price; doesn’t change

b) falls to the world price; increases

c) falls to the U.S. no-trade price; doesn’t change

d) rises to the U.S. no-trade price; increases

Wrong! - When the U.S. tariff is removed, does the price of softwood lumber in the United States rise or fall? What happens to the quantity of softwood lumber produced by U.S. lumber mills and the quantity of softwood lumber demanded by U.S. homebuilders? Does the quantity of lumber imported change?

Good Job! - When the tariff is removed, the price falls to the world price. As the price falls, the quantity of softwood lumber produced by U.S. lumber mills decreases and the quantity of softwood lumber demanded by U.S. homebuilders increases, so the quantity of imports increases.

2) When the United States removes the tariff on softwood lumber, how do U.S. consumer surplus and producer surplus change?

Removing the U.S. tariff on softwood lumber ______________ U.S. consumer surplus and ______________ U.S. producer surplus.

a) increases; decreases

b) increases; increases

c) increases; doesn’t change

d) doesn’t change; decreases

Wrong! - When the United States removes the tariff on softwood lumber, does the price of softwood lumber in the United States rise or fall? Does the quantity of softwood lumber demanded by U.S. homebuilders increase or decrease? What happens to U.S. consumer surplus? Does the quantity of softwood lumber supplied by U.S. lumber mills increase or decrease? What happens to U.S. producer surplus?

Good Job! - Removing the tariff on softwood lumber lowers the price paid by U.S. homebuilders and increases the quantity of softwood lumber demanded. U.S. consumer surplus increases. But the lower price decreases the quantity supplied by U.S. lumber mills and U.S. producer surplus decreases.

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