2. The impact of a tariff Consider a hypothetical example of trade in steel between the United States and China. For sim

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2. The impact of a tariff Consider a hypothetical example of trade in steel between the United States and China. For simplicity, assume that China is the only source of U.S. steel imports. The following graph shows the U.S. market for steel. Note that in the absence of any trade, the market price for steel in the United States is $500 per tonne, and the equilibrium quantity is 250 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. ? 1000 Domestic Demand Domestic Supply A 900 800 Consumer Surplus ◇ 700 600 Producer Surplus 500 400 300 200 100 0 PRICE (Dollars per tonne) Free Trade Price 0 50 100 150 200 250 300 350 400 450 500 QUANTITY OF STEEL (Millions of tonnes per month)
Use the previous graph to complete the first row of the following table by indicating the quantity of steel supplied by U.S. producers, demanded by U.S. consumers, and imported from China under free trade. Quantity Supplied by U.S. Producers Quantity Demanded by U.S. Consumers (Millions of tonnes of steel per month) (Millions of tonnes of steel per month) Quantity Imported from China (Millions of tonnes of steel per month) Free Trade Trade with Tariff Suppose American steel manufacturers convince the U.S. government that Chinese firms are selling steel in the U.S. market at well below the cost of producing the steel, a practice known as dumping. In response to the accusations, the U.S. government puts a tariff of $100 per tonne on steel from China. The tariff increases the price of steel from $300 to s per tonne.. Complete the second row of the previous table by indicating the quantity of steel supplied by U.S. producers, demanded by U.S. consumers, and imported from China in the presence of a $100-per-tonne tariff On the following graph, use the black line (cross symbol) to indicate the domestic price of steel in the presence of a $100-per-tonne tariff. Then use the green area (triangle symbol) to shade the area that represents consumer surplus under the tariff, and use the purple area (diamond symbol) to shade the area that represents producer surplus under the tariff. Finally, use the grey rectangle (star symbols) to show the revenue that the U.S. government collects as a result of the tariff, and use the tan triangles (dash symbols) to show the deadweight loss (DWL) from the imposition of the tariff. Note: There are two DWL triangles. Plot the right-most DWL triangle first, then plot the left-most DWL triangle after that. Plotting the DWL triangles out of order may cause your answer to be graded incorrectly.
1000 900 800 700 600 500 400 PRICE (Dollars per tonne) Domestic Demandi 300 200 100 0 Domestic Supply "Price with Tariff Consumer Surplus Producer Surplus Tariff Revenue 0 DWL 50 100 150 200 250. 300 350 400 450 500 QUANTITY OF STEEL (Millions of tonnes per month) True or False: According to this model, restricting trade using tariffs harms consumers but helps domestic producers. True False ? Free Trade Price