Answer to Question #244879 in Microeconomics for Biba

Question

7. Consider what would happen if a tariff of $2000 were imposed on imported automobiles. Show the impact of this tariff on the supply and the demand, and on the equilibrium price and quantity, of American automobiles. Explain why American auto companies and autoworkers often support import restraints on automobiles.

Answer 1

When the tariffs are imposed on imported automobiles, this will increase the price of the tariffs. This will increase the supply of the tariffs, however due to increase in price, this will be more than other people's budget, hence decrease the demand.

Increase in price indicates an increase in the equilibrium price and quantity.

American auto companies usually focus on increasing their market by selling final goods. By supporting import restraints, they end up combining the product and sell the final goods.