Question

Suppose US demand for steel is given by P = 200 – Q;

US supply for steel is given by P = 50 + Q/2;

International firms can supply as much or as little steel as they want at a price of P = 80.

(a) Draw the supply and demand diagrams with and without international trade?

(b) What is the market clearing price and quantity if international firms can sell in the U.S.? What about if international firms are prevented from selling in the U.S.?

(c) From a welfare perspective, is society better with or without international sales in the U.S.?

(d) Explain whether U.S. consumers and domestic producers win or lose if international firms are prevented from selling in the U.S.?

Answer 1

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