Please Help with Econ Hw?

Question

I need help with a homework question, answers to any parts of the question would be appreciated.

Suppose the U.S. increases the tariff on automobiles imported from Germany(and other foreign countires). What is the effect on

(a) The price of automobiles in the U.S.

(b) total # of cars sold in U.S. in a yr

(c) The german demand for goods produced in the U.S.

(d) production and employment in those U.S. industries taht now export goods to Germany

(e) Standards of living in the U.S. and Germany

(f) Allocation of resources in U.S. economy

(e) Allocation of world's resources

Thanks!

Answer 1

The direct impact of the tariff on cars imported from Germany would be to raise their prices. The objective is make those cars less competitive compared to domestically produced ones.

(a) The price of imported automobiles in the US will definitely increase. Those produced locally may increase, if firms want to take advantage of higher potential profits to be made, or may not increase to remain competitive.

(b) Should the imported cars form a big proportion of the total number of cars purchased by Americans, the imposition of tariff will cause the general price level for cars to rise. By the Law of Demand, increase in price leads to a fall in quantity demanded for cars. Hence c.p. the likely effect would be a fall in the number of cars sold in the US.

(c) Protectionist measures by the US will very likely lead to retaliation from the countries on which the measures were being imposed. As such the US exports to Germany will likely suffer the same fate as the Germans exports to US- an import tariff. Hence the demand for US-made goods will likely fall as they are now less competitive than German-made ones.

(d) Assuming the demand for US exports to Germany is Price Elastic, an increase in its price, as a result of the tariff imposed by Germany, will lead to a fall in quantity demanded for the goods. This means that the export revenue will also fall, leading to the firms making lesser profits. Should the Germany market form a big proportion of the total sales of these US companies, the fall in sales revenue may hurt their bottomline. They have to cut back on production, and may resort to cutting labour as well. Thus, these industries may see a rise in its unemployment rate.

(e) The standard of living in US, the material aspect of it, may fall as things are more expensive after the tariff. Same goes to Germany should it retaliate. The full impact is not very conclusive though as more information is needed like, GDP, infant mortality, literacy rate, etc.

(f) In the short run, there is allocative inefficiency in the US economy as more resources are being channelled to the domestic production of automobiles than necessary. The long run effect is not very certain; more efficient if US is able to find industries where it has comparative advantage in; still remain inefficient if it could not.

(g) Imposition of tariffs distort the workings of the Price Mechanism. This results in a misallocation of resources, and applies to the world's resources as well. The net effect will be a deadweight loss to society.