Draw a diagram for the US domestic market for steel under autarky with the equilibrium price at $900 per ton and the equilibrium quantity of 80 million tons. The US can import steel for about $600/ton. Use your diagram in part 1 to show what the price, quantities demanded and supplied and imported in US steel market would look like under free trade. On your diagram highlight the area that represents the loss in US producer surplus due to opening to free trade. Now the US imposes a 25% tariff on steel. In your diagram mark the area that shows the resulting tariff revenue for the US government. Suppose that instead of the tariff, the US imposed a quota on steel imports that would lead to same reduction in imports as the tariff you have drawn above. Describe how the effect of this quota differs from the effect of the tariff.
Draw a diagram for the US domestic market for steel under autarky with the equilibrium price at $900 per ton and the equilibrium quantity of 80 million tons. The US can import steel for about $600/ton. Use your diagram in part 1 to show what the price, quantities demanded and supplied and imported in US steel market would look like under free trade. On your diagram highlight the area that represents the loss in US producer surplus due to opening to free trade. Now the US imposes a 25% tariff on steel. In your diagram mark the area that shows the resulting tariff revenue for the US government. Suppose that instead of the tariff, the US imposed a quota on steel imports that would lead to same reduction in imports as the tariff you have drawn above. Describe how the effect of this quota differs from the effect of the tariff.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
- Draw a diagram for the US domestic market for steel under autarky with the
equilibrium price at $900 per ton and theequilibrium quantity of 80 million tons. - The US can import steel for about $600/ton. Use your diagram in part 1 to show what the price, quantities demanded and supplied and imported in US steel market would look like under free trade.
- On your diagram highlight the area that represents the loss in US
producer surplus due to opening to free trade. - Now the US imposes a 25% tariff on steel. In your diagram mark the area that shows the resulting tariff revenue for the US government.
- Suppose that instead of the tariff, the US imposed a quota on steel imports that would lead to same reduction in imports as the tariff you have drawn above. Describe how the effect of this quota differs from the effect of the tariff.
Question 2 Price elasticity of demand and the illegal market for meth in Wyoming
- Draw the (illegal) market for meth in Wyoming. Since meth is highly addictive the demand is very inelastic. Supply is more elastic than demand. Label the equilibrium price and quantity, P* and Q*, respectively.
- Now imagine that the Wyoming police manages to discover, raid and shut down a big meth producing lab. Add a new curve to your market diagram to show what happens as a result of this successful police work. Also comment on what is bigger: the change in price or the change in quantity ; and why that is the case
- We saw in our lectures that legalizing cocaine would likely drop the street price of cocaine by an estimated 95%. Assuming the street price of meth would drop equally if legalized, what percentage change in quantity demanded of meth would we expect if the price elasticity of demand of meth is - 0.1?
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Question 2 Price elasticity of demand and the illegal market for meth in Wyoming
- Draw the (illegal) market for meth in Wyoming. Since meth is highly addictive the demand is very inelastic. Supply is more elastic than demand. Label the
equilibrium price and quantity, P* and Q*, respectively. - Now imagine that the Wyoming police manages to discover, raid and shut down a big meth producing lab. Add a new curve to your market diagram to show what happens as a result of this successful police work. Also comment on what is bigger: the change in price or the change in quantity ; and why that is the case
- We saw in our lectures that legalizing cocaine would likely drop the street price of cocaine by an estimated 95%. Assuming the street price of meth would drop equally if legalized, what percentage change in quantity demanded of meth would we expect if the price elasticity of demand of meth is - 0.1?
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