International Trade: End of Chapter Problem In March 2002, then President George W. Bush put a tariff on imported steel as a means of protecting the domestic steel industry. In February, before the tariff went into effect, the United States produced 7.4 million metric tons of crude steel and imported about 2.8 million metric tons of steel products at an average price of $363 per metric ton. Two months later, after the tariff was in effect, U.S. production increased to 7.9 million metric tons. The volume of imported steel fell to about 1.7 million metric tons, but the price of the imported steel rose to about $448 per metric ton. The supply and demand diagram shows this situation (along with an estimated no-trade domestic equilibrium at a price of $625 per metric ton and a quantity of 8.9 million metric tons). For each of the four areas listed, calculate the values of these areas in dollars. How much of the deadweight loss is due to the overproduction of steel by higher-cost U.S. steel producers, and how much is due to the underconsumption of steel by U.S. steel consumers? a. The increase in producer surplus gained by U.S. steel producers as a result of the tariff $ million b. The loss in consumer surplus suffered by U.S. steel consumers as a result of the tariff $ million c. The revenue earned by the government because of the tariff $ million d. The gains from trade that are lost (the deadweight loss) because of the tariff $ million Overproduction deadweight loss $ million Underconsumption deadweight loss $ million
International Trade: End of Chapter Problem In March 2002, then President George W. Bush put a tariff on imported steel as a means of protecting the domestic steel industry. In February, before the tariff went into effect, the United States produced 7.4 million metric tons of crude steel and imported about 2.8 million metric tons of steel products at an average price of $363 per metric ton. Two months later, after the tariff was in effect, U.S. production increased to 7.9 million metric tons. The volume of imported steel fell to about 1.7 million metric tons, but the price of the imported steel rose to about $448 per metric ton. The supply and demand diagram shows this situation (along with an estimated no-trade domestic equilibrium at a price of $625 per metric ton and a quantity of 8.9 million metric tons). For each of the four areas listed, calculate the values of these areas in dollars. How much of the
a. The increase in
b. The loss in
c. The revenue earned by the government because of the tariff $ million
d. The
Overproduction deadweight loss $ million
Underconsumption deadweight loss $ million
Increase in PS ($ million) = area C
= (1/2) x (448 - 363) x (7.9 + 7.4)
= (1/2) x 85 x 15.3
= 650.25
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