The demand for cars in a certain country is given by: D = 20,000 - P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5P. If this economy opens to trade while the world price of a car is $6,000, and the government imposes a quota allowing 3,000 cars to be imported, then domestic equilibrium quantity of cars will be ________.

Question

Quizplus · Accepted Answer

With the quota, domestic supply becomes 8,000 + 0.5P. Thus, the new equilibrium price of the quota solves the following: 20,000 - P = 8,000 + 0.5P, implying that P = 8,000. At that price, the domestic equilibrium quantity is 12,000 cars.

The Demand for Cars in a Certain Country Is Given