b) Draw the hypothetical U.S. market’s import demand curve for steel before the tariff, and the Canadian export supply curve and the world equilibrium (assuming the United States and Canada are the only countries in the world) before the tariff. Label your graphs and explain your results.
To draw the hypothetical U.S. import demand curve for steel before the tariff, we need to understand that the demand for imports is determined by the domestic price and the quantity that consumers in the U.S. are willing to buy at different prices.
To begin, create a graph with the quantity of steel (measured in tons) on the x-axis and the price (measured in dollars) on the y-axis. Label the horizontal axis as "Quantity of Steel" and the vertical axis as "Price."
Next, think about the factors that affect the demand for imported steel. These factors include the price of steel in the U.S., consumer income, consumer preferences, and the prices of substitute goods or materials.
Assuming that the price of steel in the U.S. before the tariff is lower than the price of domestically produced steel, the demand curve for imported steel will be downward sloping. This is because, as the price of steel decreases, consumers in the U.S. will be willing to buy a larger quantity of steel.
Plot the import demand curve based on this assumption, starting from a higher price (where quantity demanded is low) and gradually decreasing the price (where quantity demanded increases). Label this curve as "Import Demand for Steel (U.S.)".
Next, let's draw the Canadian export supply curve. The export supply curve represents the quantity of steel that Canada is willing to export at different prices. Assuming there are no trade restrictions or costs, the export supply curve is usually upward sloping since producers are more willing to supply steel at higher prices.
Plot the export supply curve on the same graph, starting at a lower price (where quantity supplied is low) and gradually increasing the price (where quantity supplied increases). Label this curve as "Export Supply of Steel (Canada)".
Finally, let's find the world equilibrium before the tariff. The world equilibrium refers to the point where the quantity of steel demanded in the U.S. equals the quantity of steel supplied by Canada. This occurs at the intersection of the import demand curve and the export supply curve.
Draw a dotted line horizontally from the import demand curve to the export supply curve, and vertically from the export supply curve to the import demand curve. The point of intersection between these lines represents the world equilibrium before the tariff.
Label this point as "World Equilibrium (Pre-Tariff)" on the graph. The corresponding price and quantity at this point indicate the equilibrium price and quantity of steel traded between the U.S. and Canada in the absence of the tariff.
Remember to include proper labels and units on your graph, such as the price and quantity scales, as well as the titles for the axes and curves. Additionally, it is crucial to note that the graph assumes that the United States and Canada are the only countries in the world for simplification purposes. In reality, the global steel market is more complex and involves various countries.
By drawing the import demand curve, export supply curve, and identifying the world equilibrium, you can visualize and understand the relationship between the U.S. import demand for steel and Canadian export supply before the tariff.