Exhibit 19-7

-Refer to the graph in the exhibit.Suppose the country is initially trading without restrictions at a world price of $2.00, and an import quota of 50 units per month is enacted.How much will domestic production increase?

Question

Exhibit 19-7
 
-Refer to the graph in the exhibit.Suppose the country is initially trading without restrictions at a world price of $2.00, and an import quota of 50 units per month is enacted.How much will domestic production increase?

Quizplus · Accepted Answer

When a country imposes an import quota, domestic production increases to meet some of the demand that was previously met by imports. The specific increase from 100 to 125 units per month indicates that the domestic production is adjusting to partially fill the gap left by the restricted imports, aligning with how quotas typically affect domestic markets by encouraging local production up to the limit set by the quota.

Exhibit 19-7 -Refer to the Graph in the Exhibit.Suppose the Country Is