Question

Answer A-I please

(a) Draw a Supply Curve and the Demand Curve for the US Auto market. Label the supply S1 and the demand D1. Label the vertical axis P for Price and label the horizontal axis Q for Quantity of Milk. Label on the vertical axis the equilibrium price as P1. Label on the horizontal axis the equilibrium quantity as Q1.

Assume now that a tariff of 25% is placed on on all steel and aluminum that is imported into the U.S. from other nations.

(b) Would the Supply Curve for U.S. Autos increase, decrease or stay the same?

(c) If you said increase or decrease in (b), clearly show that change on the graph above and draw and label the new Supply as S2.

(d) Explain why the tariffs caused you to answer part (b) above the way you did.

(e) Would the Demand Curve for U.S. Autos increase, decrease or stay the same?

(f) If you said increase or decrease in (e), clearly show that change on the graph above and draw and label the new Demand as D2.

(g) Explain why the tariffs caused you to answer part (e) above the way you did.

(h) Now, would the Equilibrium Price of U.S. Autos increase, decrease or stay the same?

If you said increase or decrease, clearly show that change on the graph above and label on the vertical axis the new equilibrium price as P2.

(i) Now, would the Equilibrium Quantity of U.S. Autos increase, decrease or stay the same?

If you said increase or decrease, clearly show that change on the graph above and label on the horizontal axis the new equilibrium quantity as Q2.

Answer 1

a) The figure gives the US auto market. The quantity is S2 easured in horizo price is measured in vertical axis. The initial demand curve of the market was D1 and the initial supply was S1. The equilibrium occurred in E1, where the demand D1 intersects with S1. The equilibrium price was P1 and quantity was Q1 tal axis and S1 P2 P1 E1 D1 b) and c) The tariff on steel decreases the supply of US autos and shift the 02 01 Qauntity supply curve up to the left to S2. d) The tariff on any production increases the price of that particular good for domestic consumers. Assuming steel is one of the primary inputs in auto production, the increase in price of steel increases the cost of production of US autos. Hence, the producers now want higher price for each level of production. Thus, the supply of US autos falls or the supply curve shifts up to S2.

a) e) and f) The tariff on steel does not alter the demand for US auto and the demand curve stays the same g) The tariff on steel does not have any other impact on domestic consumer that will change the demand for autos at each level of prices and hence the demand stays same at D1 Ihh As the supply curve shifts up the market moves along the demand curve to up-left. The new equilibrium occurred at E2. The price level at E2 is P2 which is higher than P1. Then the tariff in steel increases the price of autos. At the new equilibrium E2, the equilibrium quantity is Q2. As the price rises, the quantity demand falls to Q2 from Q1. Then tariff in steel decreases the equilibrium quantity of autos.