(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 a diagram like the one that follows to show the gains and losses from such a policy. 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 indus- tries (like automobile producers) that use U.S. steel?

(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 a diagram like the one that follows to show the gains and losses from such a policy. 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 indus- tries (like automobile producers) that use U.S. steel?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: International Trade

Section: Chapter Questions

Problem 2.6P

See similar textbooks

Similar questions

How would direct subsidies to key industries be preferable to tariffs or quotas?
Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.
Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The demand (d) and supply (s) for cameras In Thailand and Japan is described by the following functions: QsT=-5+14P QsJ=-10+14P QdT=60-P QdJ=80-P P is the price measured in a common currency used in both countries, such as the Thai Baht. Compute the equilibrium price (P) and quantities in each country without trade. Now assume that free trade occurs. The free-trade price goes to 56.36 Baht. Who exports and Imports cameras and in what quantities?
Are the gains from international trade more likely to be relatively more important to large or small countries?
Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States?
Show graphically that for any tariff, there is an equivalent quota that would give the same result. What would be the difference, then, between the two types of trade barriers? Hint: It is not something you can see from the graph.
If opening up to free trade would benefit a nation, then why do nations not just eliminate their trade barriers, and not bother with international trade negotiations?
Trade has income distribution effects. For example, suppose that because of a government-negotiated reduction in trade barriers, trade between Germany and the Czech Republic increases. Germany sells house paint to the Czech Republic. The Czech Republic sells alarm clocks to Germany. Would you expect this pattern of trade to increase or decrease jobs and wages in the paint industry in Germany? The alarm clock industry in Germany? The paint industry in Czech Republic? The alarm clock industry in Czech Republic? What has to happen for there to be no increase in total unemployment in both countries?
How do trade barriers affect the average Income level in an economy?
Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of 10 per phone and South Korea can produce 50 million mobile phones at 5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?
Suppose that Congress imposes a tariff on importedautomobiles to protect the U.S. auto industry fromforeign competition. Assuming that the United Statesis a price taker in the world auto market, show thefollowing on a diagram: the change in the quantityof imports, the loss to U.S. consumers, the gainto U.S. manufacturers, government revenue, andthe deadweight loss associated with the tariff. Theloss to consumers can be decomposed into threepieces: a gain to domestic producers, revenue forthe government, and a deadweight loss. Use yourdiagram to identify these three pieces.
Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel. ecause this country exports steel, the world price is represented by . Suppose that a “pro-trade” government decides to subsidize the export of steel by paying $10 for each ton sold abroad. With this export subsidy, the price paid by domestic consumers is per ton, and the price received by domestic producers is per ton. The quantity of steel consumed by domestic consumers , the quantity of steel produced by domestic producers , and the quantity of steel exported . True or False: With the export subsidy, domestic producers will sell steel to domestic consumers and sell the rest abroad. True False Under the export subsidy, consumer surplus is and producer surplus is . Government revenue by (increases or Decreases) . As a…