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Chapter 9: Problem 5

The United States produces beef and also imports beef from other countries. a. Draw a graph showing the demand and supply of beef in the United States. Assume that the United States can import as much as it wants at the world price of beef without causing the world price of beef to increase. Be sure to indicate on your graph the quantity of beef imported. Assume that the world price of beef is lower than the U.S. price. b. Now show on your graph the effect of the United States imposing a tariff on beef. Be sure to indicate on your graph the quantity of beef sold by U.S. producers before and after the tariff is imposed, the quantity of beef imported before and after the tariff, and the price of beef in the United States before and after the tariff. c. Discuss who benefits and who loses when the United States imposes a tariff on beef.

Short Answer

Expert verified
The imposition of a tariff raises the price of beef in the United States, reduces its imports, and increases domestic production. This benefits U.S. beef producers and the government (via tariff revenues) but harms consumers (who now pay higher prices and have less beef) and foreign beef producers (who sell less).

Step by step solution

01

Draw initial supply and demand graph

Start by drawing two axes - price on y-axis and quantity on x-axis. Draw a downward sloping demand curve and an upward sloping supply curve. Mark the equilibrium point where the two curves intersect. This point gives us the original price and quantity of beef in the United States before imports.
02

Incorporate World Price

Let's add another horizontal line which represents the world price of beef (since the question states that the world price is lower than the U.S. price, this line will be below the equilibrium point). The quantity at which this line intersects with the demand and supply curves represents the quantity domestically produced and quantity demanded at world price. The difference between those quantities is the amount of beef imported.
03

Show the effect of tariff

To show the effect of tariff, add another horizontal line above the world price line. This new line represents the new price after tariff. The intersection of this line with the supply and demand curves gives new quantity domestically produced and new quantity demanded. The difference between these quantities represents the new, reduced amount of imports.
04

Identify who benefits and loses out

With the tariff, domestic producers gain as they are now able to sell more beef at a higher price, hence they benefit. Consumers lose as they have to pay higher prices for beef and also get to consume less. There's also less beef imported meaning foreign producers are selling less and hence, they lose out. The government benefits from the revenue raised from the tariff.

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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.

What is the difference between absolute advantage and comparative advantage? If a country has an absolute advantage in producing a good, will it always be an exporter of that good? Briefly explain.

Briefly explain whether you agree with the following statement: "International trade is more important to the U.S. economy than it is to most other economies."

Suppose you are explaining the benefits of free trade and someone states, "I don't understand all the principles of comparative advantage and gains from trade. I just know that if I buy something produced in America, I create a job for an American, and if I buy something produced in Brazil, I create a job for a Brazilian." Do you agree with this statement? When the United States imports products for which it does not have a comparative advantage, does this mean there are fewer jobs in the United States? In the example in Section 9.3 with China and the United States producing and trading smartphones and wheat, when the United States imports smartphones from China, does the number of jobs in the United States decline? Briefly explain.

An article in the New York Times discussed the number of innovative food companies, particularly those selling natural foods, that have become established in Boulder, Colorado, in recent years. According to the article, Boulder has a large number of people with experience in managing food companies, lenders who know the industry, food distributors, and food processing plants. The article quoted one entrepreneur as asserting: "There's an ecosystem here that supports food entrepreneurs that you just don't find in other places. Everything you need, including a lot of experience and expertise, is right here." What advantages does being located in Boulder give to startup natural food firms? In what circumstances can natural food firms located elsewhere overcome these advantages? Are Boulder's advantages likely to persist over time?
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