Question

Canada does not grow any coffee beans of its own. Imagine that Canada puts a tariff on coffe. What effect does this tariff have?

a, only a protective effect.
b. only a revenue effect.
C. no effects on trade.
d. both a protective effect and revenue effect.

Answer 1

Imposing a tariff on coffee in Canada, which does not grow its own coffee beans, would have both a protective effect, potentially aiding future domestic producers, and a revenue effect, generating funds for the government.

Step-by-step explanation:

If Canada imposes a tariff on coffee, the effect of this tariff would likely be d. both a protective effect and a revenue effect. A tariff is a tax on imports that raises the cost of imported goods. Since Canada doesn't grow its own coffee beans, the tariff would hypothetically protect any potential Canadian coffee producers, giving them a price advantage over imported goods should they enter the market in the future. However, it would primarily serve as a source of revenue for the government since there are no domestic producers currently. This tariff would lead to higher prices for consumers and a reduction in coffee imports, which translates into reduced consumer surplus. Concurrently, the government would collect revenue generated from the tariff on imported coffee.