USA and Steel Import Assignment

Added on - 21 Apr 2020

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thteUSA is a large importer of steel from China, South Korea, India and other Eastern European countries. Inorder to save its ailing domestic steel industry, the USA Department of Commerce has decided to imposeimport tariffs for imported steel into USA.(a) Assume that the demand for steel in USA is given by the equation P = 900 – 0.5Q and the supply ofsteel is given by the equation P = 300 + 0.5Q. Solve for the pre-trade equilibrium price and quantity inUSA steel market. Explain and analyse the consumer surplus and producer surplus in USA steel marketwith a proper diagram. (5 marks)Demand= P=900-05QSupply= P=300+0.5QQD; P-900=-0.5QQD= (P-900/)-0.5QD=-2P+1800............. (i)QS; P-300=0.5QQS= (P-300)/0.5QS=2P-600EQULIBRIUM; QD=QS-2P+1800=2P-600-4P=-2400P=-2400/-4P=600(b) At world price and free trade, USA is able to sell its steel at $500 per ton in the domestic market.Summarise and analyse the quantity of steel produced, consumed and imported in USA. Explain andanalyse the welfare gain from trade in USA. Show your answers of the steel market with a properdiagram. (5 marks)QS=2P-600QS= 2(500)-600QS=1000-600QS=400-PRODUCEDQD=-2P+1800QD= -2(500)+1800
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