Because of the great work you did in New Jersey, you now work for the US Treasury Department. Your boss, the Secretary of the Treasury, has asked you to evaluate the merits of imposing a tariff on imported steel. Treat the tariff as a tax that would be paid by the companies that import steel.

1. How would the tariff affect the equilibrium supply and demand for US steel companies?

2. Suppose, even after the tariff, US auto companies purchase imported steel to use as an input to the cars that they manufacture. How would the tariff affect the equilibrium price and quantity for US cars?

3. What will determine how much of the tariff is passed on to the car buyers rather than being absorbed by the car companies?

Answer rating: 100% (QA)

1 The tariff on imported steel would likely decrease the supply of imported steel leading to an incr... View the full answer