Question

Using graphs illustrate the effect of increased tariffs for imported steel in the domestic product market for steel and the domestic labor market for steelworkers. Using your graphs, indicate the cost to consumers of each job saved in the steel industry. What effect would steel tariffs have with respect to the market for Harley-Davidsons and employment at Harley-Davidson (given steel is an input to Harley-Davidson production)? What is one other reason the tariffs may reduce employment in the U.S.?

Answer 1

Answer)

The tariff for imported steel will increase the price of imported steel and thereby the quantity of imported steel will be reduced. This will encourage the domestic producers. They will produce more than before. By this tariff, government will collect revenue from imported steel. But consumers will not have more choice because the imported steel has been reduced.

The increased tariff on imports resulted in Domestic producers (Harley Davidson) will now make Q2 units, Q2-Q1 more than before. And at he higher price domestic consumers buy only Q3 units, Q4-Q3 units fewer than before. This is illustrated in following diagram.

When the demanded for imported steel has declined, the domestic producers (Harley Davidson) are willing to produce more because lack of competition with foreign goods. In order produce more they will demand more labour at existing wage rate. Thereby the unemployed people will have employment. It will lead the labour market further to decrease wage rate because of supplied labour.

The demand for labour has increased from Q1 to Q2 and the demand curve shifts towards right. Supply curve also shifts right accord to demandWith respect to consumer choice, they have lesser choice among steel products. Their demand will create benefits to the domestic producers as well as government through revenue (if they prefer to foreign even at increased tariff).