Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 19, Problem 10P
To determine
The arguments supporting the trade restrictions.
Concept Introduction:
Import - A tax levied on the import of goods among nations.
Expert Solution & Answer
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Price (dollars per ton)
1,000
800
600
400
200
0
1
2
3
4
5
D
6
Steel (millions of tons per year)
The figure shows the market for steel in the United States. If the world price for a ton of steel is $200 per ton, how much steel does the United States
import? Suppose the United States imposes a tariff of $400 per ton of steel. With this tariff, how much steel does the United States import? If it is
possible to calculate the amount of the deadweight loss from the $400 per ton tariff, what is the amount? If it is not possible, explain why it is not
possible to calculate it. Next suppose the United States imposes a tariff of only $200 per ton of steel. With this tariff, how much steel does the United
States import? How much revenue does the government collect from this tariff? Finally, suppose that instead of a tariff the United States imposes a
quota of 2 million tons of steel per year. Illustrate how the market changes with this quota. With the quota, what is the price of steel in the…
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PRICE (Dollars per tonne)
News Analysis: Nailing Down Metal Tariffs
2. The impact of a tariff
Consider a hypothetical example of trade in aluminum between the United States and China. For simplicity, assume that China is the only source of
U.S. aluminum imports. The following graph shows the U.S. market for aluminum. Note that in the absence of any trade, the market price for
aluminum in the United States is $500 per tonne, and the equilibrium quantity is 50 million tonnes per month.
Use the green area (triangle symbol) to show U.S. consumer surplus under free trade with China, and use the purple area (diamond symbol) to show
U.S. producer surplus under free trade with China.
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Domestic Demand
Domestic Supply
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Consumer Surplus
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Producer Surplus
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Free Trade Price
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Question 1
Table 1 illustrates the supply and demand schedules for cheeses in Sweden and Norway. On graph
paper, draw the supply and demand schedules for each country.
a.
In the absence of trade, what are the equilibrium price and quantity of cheeses produced in
Sweden and Norway? Which country has the comparative advantage in cheeses?
b. Assume there are no transportation costs. With trade, what price brings about balance in
exports and imports? How many cheeses are traded at this price? How many cheeses are
produced and consumed in each country with trade?
c. Suppose the cost of transporting each cheese from Sweden to Norway is $5. With trade, what is
the impact of the transportation cost on the price of the traded product in each trading nation?
The extent of specialization? The volume of trade?
Table 1
Price
5
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Sweden
Quantity Supplied Quantity Demanded Price
200
400
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800
1,000
1,200
1,400
1,600
1,800
1,200
1,000
800
600
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200
5
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45…
Knowledge Booster
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- You have just been put in charge of trade policy for Malawi. Coffee is a recent crop that is growing well and the Malawian export market is developing. As such, Malawi coffee is an infant industry. Malawi coffee producers come to you and ask for tariff protection from cheap Tanzanian coffee. What sorts of policies will you enact? Explain.arrow_forwardWhy might a low-income country put up barriers to trade, such as tariffs on imports?arrow_forwardEconomics A trade expert compares the modern tariffs to the Depression-era Smoot-Hawley tariffs. He says “The economic impact is going to take years to play out." What was the effect of the Smoot- Hawley tariffs on U.S. trade? a) Both imports and exports rose by nearly about the same amount, the trade balance remained about the same, and the total volume of trade increased. b) Both imports and exports fell by nearly about the same amount, the trade balance remained about the same, and the total volume of trade decreased. c) Imports decreased, and the trade balance increased. The total volume of trade was nearly unchanged. d) Imports decreased, and the trade balance was nearly unchanged. The total volume of trade decreased.arrow_forward
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