The following graph shows the domestic market for steel in the United States, where Sp is the domestic supply curve, and Dp is the domestic demand curve. Assume the United States is considered a large nation, meaning that changes in the quantity of its imports due to a tariff influence the world price of steel. Under free trade, the United States faced a total supply schedule of Sp,w, which shows the quantity of steel that both domestic and foreign producers together offer domestic consumers. In this case, the free-trade equilibrium (black plus) occurs at a price of $350 per ton of steel and a quantity of 16 million tons. At this price, the United States imports 12 million tons of steel. Suppose the U.S. government imposes a $125-per-ton tariff on steel imports. On the following graph, use the tan line (rectangle symbol) to draw the new total supply schedule including the tariff (Sp+w+T). Then use the grey point (star symbol) to indicate the new market equilibrium price and quantity as a result of the tariff. ? PRICE (Dollars per ton) 700 650 600 550 500 450 400 350 300 250 200 0 $p+W 2 4 16 6 8 10 12 QUANTITY OF STEEL (Millions of tons) $0 • Domestic revenue effect • Terms-of-trade effect 18 20 $p+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect Deadweight Loss The tarrif's revenue effect (the import tariff multiplied by the quantity of steel imported) can be broken into two components: On the previous graph, use the green rectangle (triangle symbols) to indicate the domestic revenue effect of the tariff. Then use the purple rectangle (diamond symbols) to indicate the terms-of-trade effect. Now consider the effect of the tariff on welfare in the United States. On the previous graph, use the black triangles (plus symbols) to indicate the deadweight loss caused by the tariff. True or False: National welfare in the United States increases as a result of a $125-per-ton tariff on steel imports.
The following graph shows the domestic market for steel in the United States, where Sp is the domestic supply curve, and Dp is the domestic demand curve. Assume the United States is considered a large nation, meaning that changes in the quantity of its imports due to a tariff influence the world price of steel. Under free trade, the United States faced a total supply schedule of Sp,w, which shows the quantity of steel that both domestic and foreign producers together offer domestic consumers. In this case, the free-trade equilibrium (black plus) occurs at a price of $350 per ton of steel and a quantity of 16 million tons. At this price, the United States imports 12 million tons of steel. Suppose the U.S. government imposes a $125-per-ton tariff on steel imports. On the following graph, use the tan line (rectangle symbol) to draw the new total supply schedule including the tariff (Sp+w+T). Then use the grey point (star symbol) to indicate the new market equilibrium price and quantity as a result of the tariff. ? PRICE (Dollars per ton) 700 650 600 550 500 450 400 350 300 250 200 0 $p+W 2 4 16 6 8 10 12 QUANTITY OF STEEL (Millions of tons) $0 • Domestic revenue effect • Terms-of-trade effect 18 20 $p+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect Deadweight Loss The tarrif's revenue effect (the import tariff multiplied by the quantity of steel imported) can be broken into two components: On the previous graph, use the green rectangle (triangle symbols) to indicate the domestic revenue effect of the tariff. Then use the purple rectangle (diamond symbols) to indicate the terms-of-trade effect. Now consider the effect of the tariff on welfare in the United States. On the previous graph, use the black triangles (plus symbols) to indicate the deadweight loss caused by the tariff. True or False: National welfare in the United States increases as a result of a $125-per-ton tariff on steel imports.
Chapter1: Making Economics Decisions
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Transcribed Image Text:The following graph shows the domestic market for steel in the United States, where Sp is the domestic supply curve, and Dp is the domestic
demand curve. Assume the United States is considered a large nation, meaning that changes in the quantity of its imports due to a tariff influence the
world price of steel. Under free trade, the United States faced a total supply schedule of Sp+w, which shows the quantity of steel that both domestic
and foreign producers together offer domestic consumers. In this case, the free-trade equilibrium (black plus) occurs at a price of $350 per ton of
steel and a quantity of 16 million tons. At this price, the United States imports 12 million tons of steel.
Suppose the U.S. government imposes a $125-per-ton tariff on steel imports.
On the following graph, use the tan line (rectangle symbol) to draw the new total supply schedule including the tariff (Sp+w+T). Then use the grey
point (star symbol) to indicate the new market equilibrium price and quantity as a result of the tariff.
PRICE (Dollars per ton)
700
650
600
550
500
450
400
350
300
250
200
PD
SONN
0 2 4
B 10 12 14
16
QUANTITY OF STEEL (Millions of tons)
Sp
• Domestic revenue effect
• Terms-of-trade effect
18 20
$p+W+T
Equilibrium Under Tariff
Domestic Revenue Effect
Terms-of-Trade Effect
Deadweight Loss
The tarrif's revenue effect (the import tariff multiplied by the quantity of steel imported) can be broken into two components:
On the previous graph, use the green rectangle (triangle symbols) to indicate the domestic revenue effect of the tariff. Then use the purple rectangle
(diamond symbols) to indicate the terms-of-trade effect.
Now consider the effect of the tariff on welfare in the United States. On the previous graph, use the black triangles (plus symbols) to indicate the
deadweight loss caused by the tariff.
True or False: National welfare in the United States increases as a result of a $125-per-ton tariff on steel imports.
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