Question

The U.S. (Home country) and Japan (Foreign country) are trading with each other in the auto industry. Both are large countries in this market for cars. The U.S. imports cars from Japan.

The U.S. demand curve for cars is given by:             D =210 – 30P

The U.S. supply curve for cars is given by:        S = 30+ 30P

Japan’s demand curve for cars is given by:        D* = 50 – 10P

Japan’s supply curve for cars is given by:           S* = 30 + 10P

Answer the following questions.

The U.S. imposes a tariff of $1.50 per unit on car imports.

1. Compute the new world price of cars.
2. Compute the new domestic price of cars (tariff inclusive price of cars) in the U.S.
3. After the tariff is imposed, compute the new quantities of supply, demand, and imports for the U.S.
4. After the tariff is imposed, compute the new quantities of supply, demand, and exports for Japan.

Answer 1