Final answer:
If a quota is set at a level lower than the current level of imports, the equilibrium price paid by consumers in the imported Canadian softwood lumber market will increase. The quota will decrease the supply of Canadian softwood lumber and may increase the price and quantity of American softwood lumber sold in the U.S.
Step-by-step explanation:
The creation of a quota on Canadian softwood lumber sold in the U.S. will affect the prices and quantities of Canadian softwood lumber sold in the U.S. as well as the prices and quantities of American softwood lumber sold in the U.S. If the quota is set at a level lower than the current level of imports, the resulting equilibrium price paid by consumers in the imported Canadian softwood lumber market will increase.
When a country imposes a quota on imports, it restricts the quantity of the imported good that can enter the market. In this case, if the quota is set lower than the current level of imports, the supply of Canadian softwood lumber will decrease, leading to a decrease in the quantity available in the market. With a decrease in supply, the equilibrium price paid by consumers will increase.
In addition, the quota may also affect the prices and quantities of American softwood lumber. With a quota on Canadian softwood lumber, which is a substitute for American softwood lumber, the demand for American softwood lumber may increase. This could lead to an increase in the price and quantity of American softwood lumber sold in the U.S.