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Chapter 9: Problem 13

(Related to the Apply the Concept on page 307) An economic analysis of a proposal to impose a quota on steel imports into the United States indicated that the quota would save 3,700 jobs in the steel industry but cost about 35,000 jobs in other U.S. industries. Why would a quota on steel imports cause employment to decline in other industries? Which other industries is a steel quota likely to affect?

Short Answer

Expert verified
A quota on steel imports would cause employment to decline in other industries because these industries relying heavily on steel for their production processes will face increased production costs due to the elevated steel price. Consequently, they may reduce their output, leading to a decline in the demand for labor, hence, job losses. Industries likely to be affected include heavy machinery manufacturing, automobile, construction, and home appliances industries.

Step by step solution

01

Understanding import Quotas

Import quotas is a trade restriction that sets a physical limit on the quantity of a good that can be imported during a specific period, in this case, steel entering the United States. It's intended to protect domestic industries from overseas competition.
02

Analyzing the Impact of Steel Import Quotas

The quota will lead to a decrease in the supply of imported steel, causing the domestic price of steel to increase. Manufacturers using steel, such as construction, automotive and other heavy industries, will consequently face higher input costs.
03

Breaking Down Employment Impact

The rise in input costs for these companies could lead to a decrease in production, as the companies may not be able to absorb the extra costs while maintaining the same level of output. This decrease in production will lead to job losses, as less labor will be needed.
04

Identifying Affected Industries

Industries that heavily rely on steel as a raw material such as heavy machinery manufacturing, automobile, construction, and home appliances are likely to be affected by the steel quota.

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Most popular questions from this chapter

If the United States were to stop trading goods and services with other countries, which U.S. industries would be likely to see their sales decline the most? Briefly explain.

Every year, the Gallup Poll asks a sample of people in the United States whether they believe foreign trade provides "an opportunity for economic growth through increased U.S. exports" or whether they believe foreign trade represents "a threat to the economy from foreign imports." The following table shows the responses for 2 years. a. Do you believe that foreign trade helps or hurts the economy? (Be sure to define what you mean by "helps" or "hurts.") b. Why might the general public's opinion of foreign trade be substantially different during an economic recession, when production and employment are falling, than during an economic expansion, when production and employment are increasing? c. Typically polls show that people in the United States under 30 years of age have a more favorable opinion of foreign trade than do people age 65 and over. Why might younger people have a more favorable view of foreign trade than older people?

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