The demand for cars in a certain country is given by: D = 20,000 - P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5. If this economy is open to trade, and the world price of a car is $6,000, and the government imposes a quota allowing 3,000 cars to be imported, then domestic price of the car will be ________.

Question

Quizplus · Accepted Answer

With the quota, domestic supply becomes 8,000 + 0.5P. Thus, the new equilibrium price of the quota solves the following: 20,000 - P = 8,000 + 0.5P, implying that P = 8,000.

The Demand for Cars in a Certain Country Is Given