Question

U.S. firms can produce and sell electric fans for $25. The United States can also import electric fans from China at $19 each and from Canada at $20 each. Electric fans made in the United States, China, and Canada are identical. Currently, the United States imposes a 30% tariff on imported electric fans. which country will the United States import fans?
A) China B) Canada C) both China and Canada D) neither China nor Canada

Answer 1

Answer: Option (A) is correct.

Explanation:

U.S firms sell electric fans = $25 each

Before imposition of 30% tariff,

Imported price of electric fans from China = $19 each

Imported price of electric fans from Canada = $20 each

All the three countries are producing identical electric fans.

After imposition of 30% tariff,

Imported price of electric fans from China = $24.7 each (tariff of $5.7)

Imported price of electric fans from Canada = $26 each (tariff of $6)

∴ U.S will import fans from China because China has the lower price of electric fans as compared to United States and Canada after imposition of 30% tariff.