Employing a general equilibrium approach, describe the effect of a new

Employing a general equilibrium approach, describe the effect of a new law that prohibits steel imports.

What will be an ideal response?

ANSWER

The initial effect is that the supply curve for steel shifts leftward. This raises the price of steel. The largest users of steel are the automobile industry, the construction industry, and the appliance industry. The increased cost of inputs will raise the price of the goods produced by these industries. Given time, these industries will look to substitute plastic or aluminum in place of steel, raising the prices of these materials.