Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume that the Domestic market (USA) for steel can be represented by the following demand and supply equations: Demand: P = 450 - 0.5Q D

Assume that the Domestic market (USA) for steel can be represented by the following demand and supply equations:

Demand: P = 450 - 0.5QD

Supply: P = 150 + QS

A) What is the autarky price for steel? How much quantity is supplied and and consumed domestically at this price?

B) Now assume a world price of $250. How much is either imported or exported in the US market (give the number and whether these are imports or exports)? What is the net surplus change as a result of allowing for international trade? Who is better off and who is worse off in the domestic economy (as it pertains to the consumption and production of steel)?

C) Now assume that the US is considering a $50 specific tariff on the imports of steel. We will assume the US is a small country, and the domestic price of steel jumps up by exactly the tariff. Now, calculate the new level of trade.

D) With the tariff, what is the net change in surplus, relative to free trade? State whether it is a loss or gain. Specify the change in consumer surplus, producer surplus, and tax revenue.

E) Assume that foreign producers decide to eat some of the steel tariff, so that consumer prices in the US only increase by $40 (and there is no retaliation). What happens to the US terms of trade and how does that affect the change in total surplus due to the tariff above (no need to calculate specific numbers again, just give the direction).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Green Jobs For Sustainable Development

Authors: Ana Maria Boromisa, Sanja Tišma

1st Edition

131775185X, 9781317751854

More Books

Students also viewed these Economics questions

Question

14. Now reconcile what you answered to problem 15 with problem 13.

Answered: 1 week ago