Question

The following table summarizes two hypothetical situations for the US Steel market. The first column depicts the situation in the presence of a tariff. The second column depicts the situation with free trade.

                                                                        With                                        Free

                                                                        Tariff                                       Trade

World price of steel                                        $400/ton                                  $400/ton

US price of steel                                             $600/ton                                  $400/ton

Steel bought in US                                          10 million tons                        12 million tons

Steel produced in US                                      4 million tons                          2 million tons

20) If the labor input is 2 person-hours per finished ton of steel, what is the cost to consumers of steel per domestic steel industry job saved by the tariffs? (Assume 2000 person-hours = 1 job.)

options:

	$100,000
	$1,100,000
	$50,000
	$650,000
	$200,000

Answer 1

Answer: 5th option

The amount of tax is the amount of tax.

Tax per ton = US price with tariff – US price free trade

                   = 600 – 400

                   = $200

Increasing domestic production by = with tariff – Free trade

                                                         = 4 million tones – 2 million tones

                                                         = 2 million tones

Total cost to consumers = Tax per ton × Increasing domestic production by

                                       = $200 × 2 million tones

                                       = 200 × 2,000,000

                                       = $400,000,000

Cost to consumers per job saved = Total cost to consumers / Person-hours per job

                                                     = $400,000,000 / 2,000

                                                     = $200,000