Suppose that the world price of steel is $500 per ton. Now suppose that the United States imposes a 20% tariff on imported steel (as it did in 2002). What is the U.S. domestic price of steel after the 20% tariff is imposed (rounded to the nearest dollar) if exporters bear two-thirds of the tariff?

Question

Quizplus · Accepted Answer

The 20% tariff on $500 is $100, making the total $600 if the tariff were fully passed on. However, if exporters bear two-thirds of the cost, they absorb $66.67 (two-thirds of $100), leaving the importers (and thus domestic price) to increase by only $33.33. Therefore, the new price is approximately $533.33, rounded to $533.

Suppose That the World Price of Steel Is $500 Per