1. Trade, tariffs, and quantitative analysis: Back in the 1980s Australia still had a car manufacturing industry, but it was already difficult to compete with manufacturers from other countries. In order to help the local manufacturers, the Australian government imposed a tariff on imported cars at around 50%.
   1. *First, draw an illustrative "qualitative" (i.e. no numbers) model of the market for mid-size cars in Australia. Show domestic demand, supply, world price, and the quantities of cars produced and consumed domestically, and traded. Show the areas indicating consumer and producer surplus. How does access to the international market affect local producers and consumers of these cars?
   2. **Now, add a tariff into the model. Show how this affects the quantities of cars produced and consumed domestically, and traded. Show how this affects welfare (i.e. surplus enjoyed by all domestic market participants). What might have been the economic rationale for imposing a tariff? Do you think it was justified?
   3. ***Finally, we will add some numbers to make this a hypothetical quantitative exercise. Let's assume the demand and supply functions for mid-sized cars in Australia was given by:

Q_D = 100,000 - 5P

Q_S = 10P - 50,000

If the world price for a mid-sized car was $6,000, calculate the total surplus under (i) no trade; (ii) trade but no tariff; and (iii) trade with a $2,000 tariff placed on each car. What would have been the value of international trade to the Australian economy under scenario (ii) versus (i)? What is the government revenue earned from the tariff under scenario (iii)? What would be the size of the deadweight loss from this tariff compared to trade without tariff (if any)?