Now assume that the United States trades steel and aluminium only with China. Suppose that the...

 

Transcribed Image Text:

Now assume that the United States trades steel and aluminium only with China. Suppose that the US and China have the following demand and supply functions for steel and aluminium: United States: QD=14-P QS=-6+P China: (1) (2) QD*=12-P (3) QS*=P (4) where Q, P, D, S, and * denote quantity, price in US dollars, demand, supply, and China, respectively. (A) Please determine the equilibrium price and quantity in autarky in both countries. (B) If the US and China are assumed to trade with each other only, determine the equilibrium in free trade. In other words, please determine the equilibrium price of steel and aluminium in free trade and the volume of bilateral trade. (6 marks) 2. Assume for now that the US, the importing country, imposes a specific of $US 2 on its steel and aluminium imports and China does not retaliate. (A) Please explain the effects of the US import tariff on the US steel and aluminium import and provide a detailed welfare analysis of the effects of the US tariff on US steel producers, US steel consumers and US government tariff revenue. (B) Please show that the welfare effects of the US import tariff are the same regardless of which of the two groups (the US steel and aluminium consumers and Chinese steel and aluminium producers) pays the US import tariff. (9 marks) 3. (A) Please also explain the welfare effects of the US tariff on Chinese steel producers, consumers and government. (B) Please compute the changes in China's consumer surplus and producer surplus as a result of the US import tariff. (6 marks) Now assume that the United States trades steel and aluminium only with China. Suppose that the US and China have the following demand and supply functions for steel and aluminium: United States: QD=14-P QS=-6+P China: (1) (2) QD*=12-P (3) QS*=P (4) where Q, P, D, S, and * denote quantity, price in US dollars, demand, supply, and China, respectively. (A) Please determine the equilibrium price and quantity in autarky in both countries. (B) If the US and China are assumed to trade with each other only, determine the equilibrium in free trade. In other words, please determine the equilibrium price of steel and aluminium in free trade and the volume of bilateral trade. (6 marks) 2. Assume for now that the US, the importing country, imposes a specific of $US 2 on its steel and aluminium imports and China does not retaliate. (A) Please explain the effects of the US import tariff on the US steel and aluminium import and provide a detailed welfare analysis of the effects of the US tariff on US steel producers, US steel consumers and US government tariff revenue. (B) Please show that the welfare effects of the US import tariff are the same regardless of which of the two groups (the US steel and aluminium consumers and Chinese steel and aluminium producers) pays the US import tariff. (9 marks) 3. (A) Please also explain the welfare effects of the US tariff on Chinese steel producers, consumers and government. (B) Please compute the changes in China's consumer surplus and producer surplus as a result of the US import tariff. (6 marks)

Answer rating: 100% (QA)

3 B United State demand of stal ... View the full answer