Assume that imported and domestically produced cars are close substitutes and the demand for both is price elastic. Now assume that a tariff is imposed on imported cars.

A. Using a correctly labeled graph, show the impact of the tariff on the price and output (quantity) of imported cars.

B. Using a correctly labeled graph, show the impact of the tariff on the price and output (quantity) of domestically produced cars.

C. Given that the demand for imported cars is price elastic, will expenditures on imported cars by consumers increase, decrease, or remain the same? Explain your answer.