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International Trade Restrictions

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Suppose that the world price for steel is below the U.S. domestic price, but the government requires that all steel used in the United States be domestically produced.

a. Use a diagram like the one in Exhibit 5 to show the gains and loses from such a policy.
b. How could you estimate the net welfare loss (deadweight loss) from such a diagram?
c. What response to such a policy would you expect from industries (like automobile producers) that use U.S. steel?
d. What government revenues are generated by this policy?
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The net welfare loss to the society is determined in this solution.

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15. (Trade Restrictions) Suppose that the world price for steel is below the U.S. domestic price, but the government requires that all steel used in the United States be domestically produced.
a. Use a diagram like the one in Exhibit 5 to show the gains and loses from such a policy.
b. How could you estimate the net welfare loss ...

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