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 $280 per ton of steel and a quantity of 8 million tons. At this price, the United States imports 6 million tons of steel. Suppose the U.S. government imposes a $100-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 perton) 560 520 480 440 400 360 + 220 + 280 240 200 100 0 Do SD+W 1 Sp 2 3 4 5 07 80 10 QUANTITY OF STEEL (Millions of tons) 101 So+w+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect Deadweight Loss (?)
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 $280 per ton of steel and a quantity of 8 million tons. At this price, the United States imports 6 million tons of steel. Suppose the U.S. government imposes a $100-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 perton) 560 520 480 440 400 360 + 220 + 280 240 200 100 0 Do SD+W 1 Sp 2 3 4 5 07 80 10 QUANTITY OF STEEL (Millions of tons) 101 So+w+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect Deadweight Loss (?)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Note:-
Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.
Transcribed Image Text:7. Effects of a tariff in a large nation
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 $280 per ton of
steel and a quantity of 8 million tons. At this price, the United States imports 6 million tons of steel.
Suppose the U.S. government imposes a $100-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 perton)
560
520
480
440
400
360
220
280
240
200
160
0
6°
So+w
1
I
2 3
4
5
6
7
8
QUANTITY OF STEEL (Millions of tons)
9
Sp
10
Sp+w+T
Equilibrium Under Tariff
Domestic Revenue Effect
Terms-of-Trade Effect
Deadweight Loss
Transcribed Image Text:180
0
D+W
1
2 3 4
5 8 7 8
QUANTITY OF STEEL (Millions of tons)
• Domestic revenue effect
• Terms-of-trade effect
The tarrif's revenue effect (the import tariff multiplied by the quantity of steel imported) can be broken into two components:
9 10
Deadweight Loss
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.
True
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.
False
True or False: National welfare in the United States increases as a result of a $100-per-ton tariff on steel imports.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education