Question

Suppose that the U.S. government increases the tariff on imported steel and aluminum. Will this affect the supply or the demand for new automobiles? Why? Which determinant of demand or supply is being affected? Show graphically with before- and after-curves on the same axes. How will this change the equilibrium price and quantity of new automobiles manufactured in the U.S. in general? Explain your reasoning.

Answer 1

Yes, an increased tariff on the steel and aluminium will increase the input cost for the automobiles in the market and shift the supply curve to the left, the new equilibrium will be at a higher price and lower output. An increase in the price will also decrease the demand in the market.

It will affect the input cost and that will affect the supply in the market.

here, the old equilibrium was at A and after an increase in the tariff it will be at B.