Question

American car dealers are still not completely back on their feet from a recent economic downturn. In order to help American car companies like Ford and GM gain more sales, Senator Joseph Ellis has proposed that all automobiles imported from Japan and Germany should pay an extra $2,000 per vehicle to enter the United States. (This would not affect cars from foreign car companies like Toyota and BMW that are built in factories in the United States, only those cars that are actually transported from overseas into the United States.

1. Type of trade barrier: _________________________

2. The trade barrier meant to protect _________________________.

3. Argument for why you would or would not recommend this proposal:

Answer 1

a) This is a tariff on the imported cars which will reduce the imports as the price will be higher resulting in less demand.

b) The trade barrier is meant to protect the produce of the cars.

c) I would not recommend any such barrier because it will reduce the demand in the economy and that will decease the consumer surplus and increase the producer surplus and the government revenue but the loss in the consumer surplus will be more than the gain in other sectors like producer and government.