Exhibit 19-8
-If the country in Exhibit 19-8 is initially trading without restrictions at a world price of $2.00 and an import quota of 50 units per month is enacted,

Question

Exhibit 19-8 
-If the country in Exhibit 19-8 is initially trading without restrictions at a world price of $2.00 and an import quota of 50 units per month is enacted,

Quizplus · Accepted Answer

Before the quota, the domestic price was $2.50, which is higher than the world price of $2.00, so the country was producing 100 units per month and importing 25 units per month (100-75).

When the quota of 50 units per month is enacted, the domestic price will remain at $2.50 because the quota is less than the previous level of imports. However, now only 50 units per month can be imported, so the country will produce an additional 25 units domestically to make up for the reduced imports. Therefore, the new domestic production will be 100 + 25 = 125 units per month.

Thus, the correct answer is D.

Exhibit 19-8 -If the Country in Exhibit 19-8 Is Initially Trading Without