The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical.
FIGURE 34- 4
-Refer to Figure 34- 4. Assume there is free trade in bicycles. If the world price of bicycles is $500, domestic consumption is at a price of _ _.

Question

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical.
  FIGURE 34- 4
-Refer to Figure 34- 4. Assume there is free trade in bicycles. If the world price of bicycles is $500, domestic consumption is at a price of _ _.

Quizplus · Accepted Answer

With free trade, domestic consumers will demand bicycles at the same world price of $500, so the domestic consumption will occur at the intersection of the demand curve and the world price of $500. This occurs at a quantity of 30,000 bicycles and a price of $500. Therefore, the correct answer is E) 30,000; $500.

The Diagram Below Shows Supply and Demand Curves for Bicycles