(Trade Restrictions)Suppose that the world price for steel is below the U.S. domestic price, but the government requires that all steel used in the United States be domestically produced.

a. Use the diagram below to note the gains and losses from such a policy, i.e movement from Q* to Q_dom.

b. How could you estimate the net welfare loss (deadweight loss) from such a diagram?

c. What response to such a policy would you expect from industries (like automobile producers) that use U.S. steel?

d. What government revenues are generated by this policy?

Hint: Without restrictionsQ* is consumed at a price ofP_w, of whichQ** is produced domestically andQ*-Q** is imported. What happens with restrictions?

P Sdom D Pdom C Pw - - -- a ------- Ddom - - O ()* * Qdom Q*