If the United States imposes tariffs on lumber imported from Canada, making lumber more expensive, what will happen to the price of new homes in the U.S. assuming lumber is a major input in the construction of new homes?
A. There is no way to know
B. the price will decrease
C. The price will increase
Answer: C. The price will increase.
This is because we are assuming that the lumber is a major input in the construction of homes. The tariff will increase the price of lumber imported from Canada. The input price for new homes will increase as lumber is an input. This will raise the cost of production of new homes thereby increasing their prices.
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