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Donald Trump credits the tariffs he has imposed on steel and aluminum imports with almost c. The increase in domestic producer surplus as a result of the tariff on steel is 4500 (million) magical potency. 'Plants are opening all over the US. Steelworkers are working again, and dollars. big dollars are flowing into our Treasury' he tweeted on August 4. How do those claims d. The reduction in domestic consumer surplus as a result of the steel tariff is 7500 (million) stack up? dollars. e. All of the statements above are correct. Tariffs are taxes on imports and so will bring some cash to Smelter skelter f. Only (a) and (c) are correct. treasury coffers. But comparatively little. There is more United States, January 2017-100 substance to the claim that they have brought American furnaces Price to life. The volume of steel imports from the countries hit by the Steel 160 140 tariffs was 36% lower in June than a year previously. The Aluminium 120 corresponding fall for aluminum imports was 27% (see chart). 100 80 As prices have risen, so has [domestic] production. Steelmakers 2017 2018 are using 78% of their capacity, not far from the administration's goal of 80%. And some idled aluminum capacity is being Imports 160 brought back online." (The Economist, August 11, 2018, p. Steel 140 120 58) 100 Aluminium 80 So, what's not to like? Domestic steel and aluminum producers 60 2017 2018 are happy with the higher prices, and the US Treasury receives Sources: 5&P Global Platts; Census Bureau; USITC more tax revenue. Conspicuously absent, however, is the impact of these tariffs on the US domestic consumers of steel and aluminum. To sort all of this out, let's focus on the steel market, and assume that the US domestic supply function for steel is given by P Q!= And that he US domestic demand function for steel is given by P Q" = 120 - 10 where P is the prices of steel (in dollars per ton) and Q is the quantity (in millions of tons) We will also assume for the purposes of this question that the world price of steel is $400 per ton and that the US can buy all it wants at this price. Moreover, assume that the US has placed a tariff of 25% on imported steel (as indeed it did on June 1, 2018), so that the post- tariff price of a ton of imported steel is $500, and assume that the tariff applies to all countries exporting steel to the US. Which of the following statements is correct? a. Before the steel tariff, the US imports 40 (million) tons of steel, and after the tariff the US imports 20 (million) tons. b. The revenues generated by the steel tariff for the US Treasury are 2000 (million) dollars