If Canada imposes a tax on imports of Chinese solar panels, which of the following is the most likely immediate effect in the Canadian market for solar panels?

• A. The price of solar panels in Canada will increase.
• B. Canadian consumers will buy more Chinese solar panels.
• C. Canadian producers of solar panels will face increased competition from Chinese imports.
• D. The quantity of imported Chinese solar panels will increase.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the effect of an import tax (tariff) on the price of imported goods. When Canada imposes a tax on imports of Chinese solar panels, the cost of bringing those panels into Canada increases by the amount of the tax.
2. Step 2: Recognize that the import tax effectively raises the price of Chinese solar panels in the Canadian market because importers will pass some or all of the tax onto consumers in the form of higher prices.
3. Step 3: Analyze the impact on Canadian consumers. Since the price of Chinese solar panels increases, consumers will generally buy fewer of these imported panels due to the higher price, not more.
4. Step 4: Consider the effect on Canadian producers. Higher prices for imported panels reduce competition from cheaper imports, potentially benefiting Canadian producers by making their products relatively more attractive.
5. Step 5: Evaluate the quantity of imports. Because the price of imported Chinese solar panels rises, the quantity of these imports is likely to decrease, not increase, as demand falls with higher prices.