Ten Principles of Economics - Part 19. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | CHAPTER 9 APPLICATION INTERNATIONAL TRADE 187 IN THE NEWS Life in Isoland Our story about the steel industry and the debate over trade policy in Isoland is just a parable. Or is it Clinton Warns . Will Fight Cheap Imports By David E. Sanger President Clinton said for the first time today that the United States would not tolerate the flooding of our markets with low-cost goods from Asia and Russia particularly steel that are threatening the jobs of American workers. The President s statement came days after a White House meeting of top executives of steel companies and the United Steelworkers of America which helped get out the vote for Democrats last week playing a pivotal role with other unions in the party s success in midterm elections. After the meeting which included Mr. Clinton Vice President Al Gore and top Cabinet officials aides said the White House would not grant the unions demand to cut off imports of steel they say are being dumped in the American markets. But today the President warned that foreign nations must play by the rules appearing to signal that the United States would press other nations to restrict their exports to the United States. Author s note In the end the Clinton administration did decide to limit steel imports. Source The New York Times November 11 1998 pA1. steel a tax on steel imports is irrelevant. The tariff matters only if Isoland becomes a steel importer. Concentrating their attention on this case the economists compare welfare with and without the tariff. Figure 9-6 shows the Isolandian market for steel. Under free trade the domestic price equals the world price. A tariff raises the price of imported steel above the world price by the amount of the tariff. Domestic suppliers of steel who compete with suppliers of imported steel can now sell their steel for the world price plus the amount of the tariff. Thus the price of steel both imported and domestic rises by the amount of the tariff and is therefore closer to the price .
