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Scott, MIT Graduate
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Experience:  MIT Graduate (Math, Programming, Science, and Music)
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# The U.S. government would like to help the American auto industry

### Customer Question

The U.S. government would like to help the American auto industry compete against foreign automakers that sell trucks in the United States. It can do this either by imposing a quota on the number of foreign trucks imported or by imposing an excise tax on each foreign truck sold in the United States. The hypothetical demand and supply schedules for imported trucks are given in the accompanying table

Qty of imported trucks (thousands)

Price of Qty Qty Supplied

Imported Demanded

Truck Qty

Price of imported truck \$32,000 Qty Demanded 100 Qty Supplied 400

31,000 200 350

30,000 300 300

29,000 400 250

28,000 500 200

27,000 600 150

a. In the absence of government interference, what is the price of an imported truck? How many are sold in the United States? Illustrate with a diagram. b. Suppose the government adopts a quota, allowing no more than 200,000 foreign trucks to be imported. What is the effect on the market for these trucks? Illustrate using your diagram from part a and explain. c. Now suppose that, instead of a quota, the government imposes an excise tax of \$3,000 per truck. Illustrate the effect of this excise tax in your diagram from part a. How many trucks will now be purchased and at what price? What will the foreign automaker receive per truck? d. Calculate the government revenue raised by the excise tax in part c. Then illustrate it on your diagram from that part. Do you think the government, from a revenue standpoint, prefers an excise tax or a quota? e. Explain how the government policy, whether it be a quota or an excise tax, benefits American automakers. Whom does it hurt? What is the missed opportunity here and how does it reflect inefficiency?

Submitted: 7 years ago.
Category: Homework
Expert:  Ray Atkinson replied 7 years ago.
Please confirm that this question is asking strictly about the market for imported trucks, not any reference to domestic trucks, and the prices for trucks in general. Am I correct?
Customer: replied 7 years ago.
I managed to figure this out on my own.....I'm going to delete the question
Expert:  Ray Atkinson replied 7 years ago.
I'm glad you figured it out. Let me know if you need any help along the way.