Question

14. Canada has a competitive domestic market for steel and currently bars imports. The domestic market inverse demand curve for steel is p = 300 - 9 and the domestic inverse supply curve is p = 29. a. Find the domestic market equilibrium price and quantity assuming no imports or exports of steel are allowed. Calculate the resulting consumer surplus, producer surplus, and total surplus in the domestic market. Show clearly on a diagram. (5 marks) b. Now assume Canada decides to allow imports of steel and that the import inverse supply curve is p = q (i.e., this function describes the quantity of steel that would be imported as a function of the price in the domestic (i.e., Canadian market). Find the new equilibrium price, the amount of steel sold by domestic firms, and the amount of steel imported. Also calculate the resulting domestic producer surplus, domestic consumer surplus, and domestic total surplus. Show clearly on a diagram. (5 marks) c. Does barring imports of steel into Canada create a deadweight loss? Explain with a diagrant. (4 marks)