Econ 4th Edition by William McEachern

Exercise 9

Outline the gains from trade, and explain why countries might still decide to trade even if no country had a comparative advantage
(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 that follows to show the gains and losses 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?
Effect of a Tariff
Effect of a Quota