Suppose Japanese cars and American cars are identical in every way. Each American who owns a car (regardless of whether that car is Japanese or American) imposes $1,000 worth of pollution costs on his neighbors. Suppose the U.S. supply and demand curves cross at a price of $10,000, but Americans can buy as many cars as they want to from Japan at $7,000 apiece.

1Suppose the U.S. government imposes a tariff of $1,000 apiece on all Japanese cars sold in the United States. Illustrate the gains and losses to all relevant groups of Americans. Does the tariff increase or decrease social welfare? By how much?

2.Suppose the U.S. government imposes an excise tax of $1,000 on every car manufactured in the United States. Illustrate the gains and losses to all relevant groups of Americans. Does the excise tax increase or decrease social welfare? By how much?

3.Suppose the U.S. government imposes a tax of $1,000 on all cars sold in the United States, both foreign and domestic. Illustrate the gains and losses to all relevant groups of Americans. Does the tax increase or decrease social welfare? By how much?

Note: for each of the previous 3 questions, make sure you write down the price consumers are paying and the price American producers are receiving.