Question

From the previous question, suppose the US imposes a $2,000 tariff on each car. Further, suppose that domestic quantity demand falls by 200 and domestic quantity supplied rises by 200. What is the new quantity of imports? How does a tariff harm societal welfare?

Previous question: Suppose, the world price for cars is $10,000. Further, the US has a quantity demand at that price of 1,000 cars, and a quantity supplied of 200. How many cars will the US import to satisfy domestic demand?

Answer 1

After tariff

Qd=1000-200=800 units

Qs=200+200=400 units

Import =Qd-Qs=800-400

=400 units

the import after the tariff is 400 units

How does tariff harm societal welfare?

The tariff increases producer surplus but decreases producer surplus more than that.

It makes a deadweight loss =0.5* tariff * change in quantity demanded +0.5* tariff * change in quantity supplied

=0.5*200*2000+0.5*200*2000

=$400000

It reduces the total surplus by $400000 or is create a deadweight loss of $400000