Question

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. What is the likely impact on the demand for domestically produced cars?

Answer 1

When a tariff is imposed on imported cars, the demand for domestically produced cars is likely to increase.

Step-by-step explanation:

When a tariff is imposed on imported cars, it increases the price of imported cars, making them more expensive compared to domestically produced cars. As a result, the demand for domestically produced cars is likely to increase.