An import tariff on steel will the market power of domestic steel producers and the market power of international steel producers.
Added by Luz P.
Step 1
This will likely increase the market power of domestic steel producers as they will be able to sell their products at a higher price due to reduced competition from cheaper imports. Show more…
Show all steps
Your feedback will help us improve your experience
Jennifer Stoner and 92 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
Export subsidies will increase domestic steel prices to minimize consumption rates in the domestic market. However, this will increase the consumption rate in foreign markets because steel selling prices for foreign importers will decrease. The quantity of steel will increase due to increased demand in foreign markets and steel exports will increase in price as foreign importers will enjoy highly affordable prices. Consumer surplus will decrease due to export subsidy because there will be a decrease in consumption in the exporting country due to high steel prices in the domestic market. There will be an increase in excess production due to increased overseas demand due to export subsidies. Government revenue will increase due to increased export taxes from exporting steel to foreign markets. The total surplus will benefit domestic producers more than consumers because high prices sap their purchasing power. Manufacturers will have the opportunity to earn more profits through exposure to new customers and markets. In conclusion I would say, the economic efficiency of export subsidies depends on specific market conditions and government objectives, while they could be used to correct market failures, they could also lead to market distortion's and inefficiencies, hence the need to evaluate on a case by case basis. Respond to this discussion
Jennifer S.
Impact on Domestic Steel Price: The export subsidy results in a decline in the domestic steel price as it stimulates increased supply, it exerts downward pressure on the domestic price of steel by strengthening its supply in the market. This tends to stimulate the quantity of steel produced domestically, a consequence of the incentive structure provided by the subsidy. Steel Production Quantity: The subsidy encourages higher domestic steel production, leading to an upsurge in the quantity produced. Steel Consumption Quantity: With a reduced domestic steel price, there is a likelihood of increased consumption domestically. Exported Steel Quantity: The subsidy's primary goal is to amplify steel exports, consequently elevating the quantity of steel shipped to foreign markets. Consumer Benefit: Consumers enjoy expanded surplus due to the lower domestic steel prices prompted by the subsidy. Producer Outcome: Export-focused producers witness augmented revenues, while those catering to the domestic market may face heightened competition, influencing their surplus. Government Financials: The government bears costs from subsidizing steel exports, which might outweigh potential gains from heightened tax revenue. Efficiency Evaluation: From an efficiency perspective, export subsidies may disrupt resource allocation by favoring a specific industry, potentially causing inefficiencies compared to policies advocating fair competition in the global market.
Crystal W.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Watch the video solution with this free unlock.
EMAIL
PASSWORD