Question

please assist with question 6 and 7 , thank you .

In this question, we study the consequences of trade policies on the automobile market. We assume that cars are all similar on the market in other words, a car is a homogeneous good). The supply of Japanese cars is perfectly elastic at a price pj= 20. Moreover, the supply of cars made in the US is Qus = p - 15 for any price larger than 15. Finally, the demand for cars from American consumers is QD = 30 - sp. 1. Let's consider that the American economy is in autarky, and therefore American consumers cannot import cars. What will be the equilibrium price of cars on the market? How many cars will be sold? 2. On a graph with car prices on the vertical axis, and quantities on the horizontal axis, plot the market equilibrium. What are the consumer and producer surplus for this equilibrium? 3. We now assume that the American economy opens up to trade. As a consequence, American consumers can buy Japanese cars. What will be the new equilibrium quantities and prices? How many cars will be imported and how many will be produced domestically? 4. On a new graph, plot the supply of car on the American market, the new equilibrium and the consumer and producer surpluses. 5. What are the new consumer and producer surplus in this new context? Who is winning or losing from opening the economy to international trade? What is the overall effect on total welfare? 6. Because of complaints from the automobile industry, the government considers imposing a tariff of $4 on imported Japanese cars. What would be the new equilibrium with this tariff? 7. What would be the new consumer and producer surpluses and the tax revenue for the gov- ernment? Plot the new equilibrium and the consumer, producer and government surpluses on a new graph. What is the effect on the total welfare? 8. Instead of the tariff, the government is considering imposing a quota on Japanese cars such that all Americans cars below $28 can be sold on the market. What should be the maximum size of this quota to make sure that all American cars below $28 can be sold?

Answer 1

Pemi as=P-15 Bitte 24 8524 Pj = 20 IS TA T Os = 30-P/2 o 30 when $4 lax is imposed on impost New puie = 20 +4= $24 do = 30-24/2 = 18 Os = 24-15=9 Import = 9 conroduce surplus = area ABC = +2 x 9 x9=40.5 conserne hodater supplies - area FBD = I x 36x18= 324 Gout Revenue = 4X (18-97= 36