Question 1 [20 points] Suppose a developed economy is looking to reduce its emission levels from the steel industry. [4 points] Draw a supply and demand graph for the steel industry, with the equilibrium price and quantities equal to $5 and 2 million respectively. Suppose that the world price of steel is $6. Show this price on the graph and explain whether the country imports or exports steel at the world price. [4 points] Suppose the government imposes a tax which pushes the supply curve to a new equilibrium of $7, but the world price is unchanged. Draw the new curve and explain what effect this has, in theory, on the competitiveness of that country for steel. ii. iii. [4 points] Based on the empirical evidence seen in class, what would you expect the effect of the tax to be on the competitiveness? Explain. iv. [4 points] What can the government do to foreign-made steel to help the domestic steel industry? If the country is a developing country, what is one challenge they will face to implementing this tax described in (ii)? Explain. V