Tariff revenue maximized with inelastic supply and demand

Steps:

• Domestic price rises to $11,000 with 10% tariff.
• New demand ≈ 200,000 × (1 + Ed × 0.1); new supply ≈ 100,000 × (1 + Es × 0.1).
• New imports = new demand - new supply ≈ 100,000 × [1 - 0.2|Ed| - 0.1|Es|].
• Revenue = $1,000 × new imports; maximized when |Ed| and |Es| are smallest.

Why A is correct:

• Inelastic Es=0.5 and Ed=-0.5 minimize import reduction (to 85,000 cars), maximizing revenue via smallest weighted elasticities sum (0.15).

Why the others are wrong:

• B: Negative Es=-0.5 invalid; supply elasticity must be positive.
• C: Elastic Es=1.5 boosts supply more, cutting imports to 75,000 cars.
• D: Elastic |Ed|=1.5 and Es=1.5 shrink imports most (to 55,000 cars).

Final answer: A