Question

#4. Assume that the United States, as a steel importing nation, is large enough so that changes in the quantity of its imports influence the world price of steel. The U.S. supply and demand schedules for steel are illustrated in the table below, along with the overall amount of steel supplied to U.S. consumers by domestic and foreign producers: Supply and Demand: Tons of Steel (United States) Quantity Supplied (Domestic (Sd)) Quantity Supplied (Domestic + World [Sd+w]) Quantity Demanded (Domestic (Dd])) 15 14 13 Price/Ton $100 $200 $300 $400 $500 $600 $700 a. Plot the supply and demand schedules on the same graph - you can assume that these linear relationships continue for prices higher than $700 (e.g., @$800; Sa = 6, Sd+w= 28, D. = 8, etc.). It is probably easier to use graph paper for this question. (2 marks)

Answer 1

Figure 1

1000 900 800 700 600 D A Sd 500 Sd+w В E F Dd 400 G Sd+w+t 350 300 200 100 0 12 4 5 2 0 10 15 30 Quantity 25 20 Price

a) Tha figuru is b) From fiauu- 1, free ivade price in *400 Domestic quantg suppled 2 demamaed 2 Import 12 - 2 0 Th tacift shifted tw Sw Ce up at each qwamiang by&250. That in tu vextical differunce be tween San amd new c) SAtwtt is S250 domestHc price n Cuts the O cwrwe Domestic quantity supplied = 4 demamded = l6 Import consumex sweplus 'n Cii Total reducion is A + B C D + £ + F |(A BC+ DtE)* F COx 200)+x 20x (12-10) 20 2 O O 2 O O Consumption effect : F Pyriecti ve : BtC x200* (A - 2) A A+B+ C-CBtc) Redistriautive 200x4 250 =150 DE = 200x6 Domestic vevenwe 1200 (400-350) 6 900 TOT esteet : a s Chamge in welfara : G F-B-c = 5D0