In the preceding problem, suppose that instead of imposing a $1,000 tariff on Japanese cars, the government imposes a sales tax of $1,000 on all cars sold in the United States whether foreign or domestic.
a. Explain why U.S. producers must still receive $7,000 for every car they sell. How much must U.S. consumers now pay for a car?
b. Illustrate the social gain, including gains to all relevant groups of Americans.
c. Is the sales tax better or worse than the tariff of problem 3? Is it better or worse than doing nothing at all?