Let's think about how imports affect official GDP statistics. Recall from Chapter 11 that GDP is computed as:

Assume that originally U.S. GDP is $10 trillion, but that the economy is closed and there are no imports or exports. Now the nation of Bataslava begins selling high-quality automobiles in the United States but charges a very low price-say, $500 each. Assume that U.S. consumers use this opportunity to substitute out of U.S.-produced automobiles and into automobiles from Bataslava, and that spending on other U.S. goods does not change.

a. What happens to U.S. GDP going forward?

b. Is this a positive or a negative development for citizens of the United States? Why?

c. What would be an argument for a tariff on the Bataslavan cars?