Suppose that in Japan, without a tariff 10,000 cars will be sold per year at an equilibrium price of $20,000. With a $5,000 tariff, supply decreases such that 8,000 cars are produced at $22,500 per car.
- Use a supply and demand diagram to graphically illustrate the example above.
- Why is the increase in price less than the tariff?
- Who bears the burden of the tariff?
- What are government revenues from the tariff?
- What is the "dead-weight loss" associated with the tariff - i.e., the lost in Producer Surplus and Consumer Surplus?