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Two Approaches to Measuring the Impact of Trade Restrictions The General Equilibrium Method (STM) Shows the impact on production in both sectors,...
Suppose Canada decides to subsidize exports of softwood lumber (as the U.S often accuses it of doing). We estimate that a 50% subsidy would result in lumber production in Canada increasing from 800 mbf to 1,000 mbf and domestic consumption falling from 300mbf to 200mbf ("thousand board feet"=mbf). Furthermore, since Canada is a large world supplier, we predict the world price will fall from C$450 to $400/mbf. a) Show the old and new equilibria using one partial equilibrium figureb) Calculate the gains to Canadian producersc) Calculate the deadweight social lossesd) Calculate the gain or loss to Canada as a whole e) If U.S producers are harmed by this practice, the appropriate U.S policy action is a_______________.
