This question deals with a partial equilibrium tariff analysis and is based on the recent trade conflict between the US and Canada in soft wood lumber products. For the sake of simplicity assume that the US is a small nation in the world lumber market.
US Soft Wood Lumber Industry
P=80 – .5Q (Demand)
P=5 + Q (Supply)
Pw=$25 (current free trade price)
a. Plot the supply curve, demand curve and the world price. Calculate the free trade US consumer surplus, producer surplus, and volume of imports of Canadian soft wood lumber.
b. Provide a definition of dumping. If US lumber companies feel free trade is injuring their business how would they go about seeking protection using antidumping legislation? Explain the relevant process that the government agencies use to determine if a countervailing duty should be imposed on the Canadian lumber industry.
c. Suppose a countervailing import tariff of $15 is imposed on imported lumber. Provide a welfare analysis of this policy using your graph. Discuss the welfare change in the graph and calculate the new level of imports, the new consumer surplus, producer surplus and the net change in welfare. Would you support this antidumping policY
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