The country of Maldovia is considering imposing a new tariff on imported cars to protect it's domestic manufacturing. Let domestic supply be S(p) = p and domestic demand be D(p) = 100 p.

a) Assume that the world supply of cars is perfectly elastic and the world price is 40.

i) Draw a graph showing demand and domestic and foreign supply curves.

ii) With no tariff, how many cars will Maldovia produce and import?

iii) If the government imposes a 10% as valorem tariff, what will happen to domestic production and imports? Show on the graph.

iv) Calculate government revenue from the tariff, as well as the changes in consumer and producer surplus.

v) Does the tariff increase or decrease total surplus?