ECON 460 -001 and 002, Spring 2011 Homework 6 Due in class on March 18, 2011 (Make a copy of your answers to study for test 2) 1. The free trade price of Steel is $500 per ton. Let us say that the ad-valorem tariff is 20%. U.S. steel manufacturers produce 7 million tons of Steel per month with this protection. If the output is $6 million tons per month without protection, and if US imports of steel is 3 million tons per month without protection and 1.5 million tons per month with protection, calculate the effect of this tariff on the following groups: (Assume that the US is a small country and use the partial equilibrium analysis) (i) US Steel Producers (5 points) (ii) US Steel Consumer (5 points) (iii) US Government (5 points) (iv) Dead Weight Loss (5 points) 2. a. Show the above in a graph. (10 points) b. If the US government pays an equivalent subsidy to the import-competing produces, what is the cost of the subsidy to the US government? Which policy would consumers prefer, the tariff or a
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