Economic Analysis of the USA Steel Market: Tariffs, Trade, and Welfare

This assignment analyzes the USA steel market, focusing on the impact of import tariffs on steel. It begins by determining the pre-trade equilibrium price and quantity in the USA steel market, calculating consumer and producer surplus. The analysis then examines the effects of free trade, including the quantity of steel produced, consumed, and imported, along with the resulting welfare gains. Finally, the assignment explores the impact of a tariff on the steel market, considering changes in production, consumption, imports, consumer surplus, producer surplus, and deadweight loss. The terms of trade after the tariff are also analyzed. The assignment provides a comprehensive economic overview of the USA steel market under various trade scenarios.

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USA is a large importer of steel from China, South Korea, India and other Eastern European countries. In
order to save its ailing domestic steel industry, the USA Department of Commerce has decided to impose
import 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 of
steel is given by the equation P = 300 + 0.5Q. Solve for the pre-trade equilibrium price and quantity in
USA steel market. Explain and analyse the consumer surplus and producer surplus in USA steel market
with a proper diagram. (5 marks)
Demand= P=900-05Q
Supply= P=300+0.5Q
QD; P-900=-0.5Q
QD= (P-900/)-0.5
QD=-2P+1800…………. (i)
QS; P-300=0.5Q
QS= (P-300)/0.5
QS=2P-600
EQULIBRIUM; QD=QS
-2P+1800=2P-600
-4P=-2400
P=-2400/-4
P=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 and
analyse the welfare gain from trade in USA. Show your answers of the steel market with a proper
diagram. (5 marks)
QS=2P-600
QS= 2(500)-600
QS=1000-600
QS=400-PRODUCED
QD=-2P+1800
QD= -2(500)+1800

QD=-1000+1800
QD=800-CONSUMED
QS-QD
400-800= (400)
This balance (400) is the quantity PRODUCED
(c) Assume that USA imposes a tariff of $100 per tonne of steel imported into USA. Explain and analyse
the quantity of steel produced, consumed and imported in USA steel market after the tariff. Foreign steel
exporters to USA have to absorb a 20% of the tariff amount since USA is a large importer that will
influence the market price. Show your answers of the steel market with a proper diagram. (5 marks)
QS=2P-600
2P-600 + (100)
QS; After Tariff= 2P-500
2(500)-500;
QS=500-PRODUCED
QD=-2P+1800
QD=-(2X500) +1800
QD=800-CONSUMED
PRRODUCED-CONSUMED =IMPORTED
500-800= (300)
300-PRODUCED
(d) Explain and analyse the effects of the consumer surplus, producer surplus and deadweight loss in the
USA steel market with the tariff. What are the terms of trade of the USA steel market after the tariff was
imposed? (5 marks)