Question

The steel industry has been lobbying for high taxes on imported steel. Russia, Brazil, and Japan have been producing and selling steel on world markets at $610 per metric ton, well below what equilibrium would be in the United States with no imports. If no imported steel was permitted into the country, the equilibrium price would be $970 per metric ton. Show supply and demand curves for the United States, assuming no imports; then show what the graph would look like if U.S. buyers could purchase all the steel that they wanted from world markets at $610 per metric ton; show the quantity of imported steel.

Answer 1

The steel market supply and demand curves for the U.S. without imports intersect at an equilibrium price of $970 per metric ton. With access to imported steel at $610 per metric ton, the demand shifts, resulting in increased total quantity available due to imports at the lower price. The imported steel quantity is depicted as the horizontal world supply line at the lower price intersecting with the domestic demand curve.

Step-by-step explanation:

To illustrate the impact of high taxes on imported steel and show supply and demand curves for the United States steel market, first, consider the scenario without imports. In this situation, the domestic equilibrium occurs where the supply and demand curves intersect at a price of $970 per metric ton.

When the U.S. buyers have access to the world market, they can purchase steel at a lower price of $610 per metric ton from countries like Russia, Brazil, and Japan. The domestic supply curve remains unchanged, but the demand curve shifts to account for the cheaper imported steel, representing an increase in the quantity of steel available at the lower price.

As a result, U.S. consumers would benefit from the lower price, and the quantity of imported steel would be the difference between the quantity of steel demanded at $610 per metric ton and the quantity supplied domestically at that same price.

This results in a horizontal line on the graph representing the world supply at the price of $610 that intersects with the domestic demand curve. Below this line, the market is supplied by imports, above by domestic producers.