Assume the auto market is initially in equilibrium with imports from Japan taking up a significant share of the market.Now assume a quota on imports of Japanese cars is established.What will occur at the initial equilibrium price to signal market participants regarding the change that has taken place?

Question

Quizplus · Accepted Answer

The establishment of a quota on imports of Japanese cars will decrease the supply of cars available in the market. This decrease in supply will lead to a shortage, as the demand for cars from Japanese manufacturers had previously taken up a significant share of the market. Therefore, the answer is D, as a shortage is created by a decrease in supply.

Assume the Auto Market Is Initially in Equilibrium with Imports