Steel is almost always used as in input in the manufacture of goods (like cars) and is never purchased directly by a consumer (steel is not a final good but it is considered an intermediate good). Cars, on the other hand, are considered a final good because they are purchased directly by consumers.

Assume that a country imports all the steel that it needs (it does not produce any steel)

and then uses the imported steel to manufacture cars.

It also does import some cars.

Assume that this is a small country and therefore has to take the world price of cars and steel as given and has no ability to affect the world price of either good.

(a) Please complete the third and fourth columns of the table given below.

(b) Based on the numbers in the table, particularly the third column, how would the imposition of

a lower tariff on steel and a higher tariff on cars help this country? Please explain.

(c) Based on the numbers in the table, are domestic consumers affected by the tariffs on steel,

particularly in a market where the returns to the domestic producers of cars is the world price (the tariff goes to the government)? Please give an explanation.

No tariff - A 20% Tariff on the A 20% tariff on the Final Good and no final good and 10% tariff on inputs (no tariff on inputs (10% tariffs on the tariffs on the imported steel) imported steel) Value of a Care $25,000- Value of foreign steel- $10,000( Domestic Value $15.000( Added Effective Rate of protection