The U.S. government would like to help the Americar auto industry compete against foreign automaker: that sell trucks in the United States. It can do this by imposing an excise tax on each foreign truck sold in the United States. The hypothetical pre-tax demand anc supply schedules for imported trucks are given in the accompanying table. a. In the absence of government interference, what is the equilibrium price of an imported truck? The equilibrium quantity? Illustrate with a diagram. b. Assume that the government imposes an excise tax of \(\$ 3,000\) per imported truck. Illustrate the effect of this excise tax in your diagram from part a. How many imported trucks are now purchased and at what price? How much does the foreign automaker receive per truck? c. Calculate the government revenue raised by the excise tax in part b. Illustrate it on your diagram. d. How does the excise tax on imported trucks benefit American automakers? Whom does it hurt? How does inefficiency arise from this government policy?

#Answer# a. The equilibrium price and quantity for imported trucks in the absence of government interference are found where the supply and demand curves intersect. This equilibrium point (P*, Q*) can be illustrated on a diagram with price on the vertical axis and quantity on the horizontal axis. b. The excise tax of $3,000 on each imported truck causes the supply curve to shift upwards by $3,000. The new equilibrium point (P', Q') is determined where the new supply curve intersects the demand curve. The price paid by consumers (P'_C) is equal to P', while the price received by foreign automakers (P'_F) is P' - $3,000. c. Government revenue generated by the excise tax is calculated as $3,000 * Q', and it can be represented on the diagram as a rectangle with a base extending from Q* to Q' and a height of the $3,000 excise tax. d. The excise tax on imported trucks benefits American automakers by making foreign trucks more expensive and potentially increasing the demand for domestic trucks. However, it hurts foreign automakers and consumers who must pay higher prices for imported trucks. The inefficiency from this policy leads to a potential deadweight loss, which can be represented on the diagram as a triangle with the tax wedge, having a height of the tax amount and a base being the difference between Q* and Q'.