Figure 9.10 shows the market for cloth in Smith Island.

-Refer to Figure 9.10 to answer this question.If Smith Island introduced an import quota of 20,what would be the new price of cloth in Smith Island?

Question

Figure 9.10 shows the market for cloth in Smith Island.
 
-Refer to Figure 9.10 to answer this question.If Smith Island introduced an import quota of 20,what would be the new price of cloth in Smith Island?

Quizplus · Accepted Answer

At the current equilibrium point, the price of cloth is $70 and the quantity demanded and supplied is 80. If an import quota of 20 is introduced, the quantity supplied would decrease to 60 (80-20) and the new equilibrium point would be where the new quantity demanded (at price $70) intersects with the new quantity supplied (at quantity 60). This new equilibrium point gives a price of $70, which remains unchanged. Therefore, the correct answer is C.

Figure 910 Shows the Market for Cloth in Smith Island