South Korea to Resume US Beef Imports (Use this news clip to answer questions 1,

Question

South Korea to Resume US Beef Imports (Use this news clip to answer questions 1, 2 and 3)

South Korea will open its market to most U.S. beef. … South Korea banned imports of U.S. beef in 2003 amid concerns over a case of mad cow disease in the United States. The ban closed what was then the third-largest market for U.S. beef exporters. …

CNN, May 29, 2008

1.    Which country, South Korea or the United States, has a comparative advantage in producing beef? What fact in the news clip did you use to answer this question?

2.    Explain how South Korea’s import ban on U.S. beef affected beef producers and consumers in South Korea. Specifically, what is the impact on consumer surplus and producer surplus in South Korea?

3.    Assuming that South Korea is the only importer of U.S. beef, explain how South Korea’s import ban on U.S. beef affected beef producers and consumers in the United States. Specifically, what is the impact on consumer surplus and producer surplus in the United States?

4.    When the United States placed a tariff on steel imports in 2003, foreign producers naturally complained. But there were also complaints from some U.S. firms. Why would some U.S. firms strongly object to the tariff on steel imports into the U.S.?

Explanation / Answer

1.Given that South Korea imported Beef from US, tells us that the US has a comparative advantage in producing beef.

2.When South Korea banned imports from US, the consumers had to buy from domestic producers.Since,the ban actually decreased the quantity of beef provided to SOuth Korean consumers and would raise the prices.This would have increased the producer surplus and decreased consumer surplus(SOuth Korea).

3.If South Korea is the only importer of US beef.Beef in US would increase,leading to a fall in prices.This would decrease the producer surplus in and increase the consumer surplus in US.

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