-The above figure shows the U.S. market for 1 carat diamonds. With free trade, U.S. production of diamonds is equal to ________ diamonds. When the quota illustrated in the figure is in place, U.S. production is equal to ________ diamonds.

Question

Quizplus · Accepted Answer

With free trade, U.S. production is at the point where the domestic supply curve intersects the world price line, indicating lower production due to cheaper imports. When a quota is in place, it restricts the quantity of imports, raising the domestic price and thus increasing domestic production to the new equilibrium where the domestic supply curve intersects the demand curve at a higher price point.

-The Above Figure Shows the U