Which of the following would be a reason China would place a tariff on Canadian lumber?

• A. To internalize the negative externalities associated with lumber imports, such as environmental damage
• B. To subsidize Canadian lumber producers
• C. To increase the social benefits of Canadian lumber in China
• D. To decrease the domestic supply of lumber in China

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of a tariff. A tariff is a tax imposed on imported goods, which typically raises the price of those goods in the domestic market.
2. Step 2: Identify the purpose of tariffs. Tariffs can be used to protect domestic industries, generate government revenue, or address externalities related to imports.
3. Step 3: Analyze the options given. Subsidizing Canadian producers would involve financial support, not a tariff. Increasing social benefits is not typically achieved through tariffs. Decreasing domestic supply is not a direct effect of tariffs on imports.
4. Step 4: Focus on the option about internalizing negative externalities. If importing lumber causes environmental damage, a tariff can raise the price to reflect these external costs, discouraging excessive imports and addressing the externality.
5. Step 5: Conclude that the reason China would place a tariff on Canadian lumber is to internalize the negative externalities associated with lumber imports, such as environmental damage, by making the price reflect these costs.