Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 25

China's entry into the World Trade Organization (WTO) is likely to create more competition between local and foreign firms, as well as provide China greater access to the market for exports. This is particularly true in the market for rubber since China is the world's second largest consumer of rubber. According to the WTO, China plans to eliminate its import quota on rubber over the next five years. What impact is the import quota reduction likely to have on the price of rubber and the quantity of rubber exchanged in China? What implications will the elimination of the quota on rubber have on China's social welfare?