Question

South Korea to Resume US Beef Imports (Use this news clip to answer questions 1, 2 and 3)

South Korea will open its market to most U.S. beef. … South Korea banned imports of U.S. beef in 2003 amid concerns over a case of mad cow disease in the United States. The ban closed what was then the third-largest market for U.S. beef exporters. …

CNN, May 29, 2008

1. Which country, South Korea or the United States, has a comparative advantage in producing beef? What fact in the news clip did you use to answer this question?

2. Explain how South Korea’s import ban on U.S. beef affected beef producers and consumers in South Korea. Specifically, what is the impact on consumer surplus and producer surplus in South Korea?

3. Assuming that South Korea is the only importer of U.S. beef, explain how South Korea’s import ban on U.S. beef affected beef producers and consumers in the United States. Specifically, what is the impact on consumer surplus and producer surplus in the United States?

4. When the United States placed a tariff on steel imports in 2003, foreign producers naturally complained. But there were also complaints from some U.S. firms. Why would some U.S. firms strongly object to the tariff on steel imports into the U.S.?

Answer 1

Answer:1. United States has the comparative advantage in producing Beef has the Korea Beef import market was the third largest for United States Beef export.

2. The Consumers surplus it's the difference between the price Consumers are willing to pay for a particular product and what they actually paid, while a producer surplus is the difference between the price the producer are willing to accept and there actual sales price. In North Korea the banned on the Beef import will reduce the level of Beef supply which will invariably increase the price thereby reducing consumers surplus for they will pay more than they are willing to pay. On the producers the ban on Beef import will increase the demand for Beef and invariably increase the price and this will increase the suppliers surplus because they will be able to sell at an higher price than they are willing to sell.

3. The ban on the US export of Beef will make more Beef to be available to the Consumers thereby leading to a fall in the price of Beef and this will lead to an increase in Consumers surplus because they will pay less price than they are willing to pay. The producers will face a surplus supply with a low demand which leads a fall in price thereby leading to a fall in supplier surplus for they will have to sell for less price than they are willing to sell.

4. Steel is a raw material for some industry in producing their final products. For such firm an increase in tariff on steel import will affect there cost of production which will invariably have a negative effect on their profit even if such firms are in US which is the steel importing country.