The domestic demand and supply for sugar are Q^d = 40,000 - 200 P and Q^SD = 10,000 + 300 P.The foreign supply is Q^SF = 20,000 + 100 P.Suppose an import quota of 5,000 is imposed in the domestic market.How many units of sugar will domestic produces supply after the quota is imposed?

Question

Quizplus · Accepted Answer

Before the quota is imposed, the total domestic demand is 50,000 - 500P, while the total supply is 30,000 + 100P. Setting these two equal, we find that equilibrium price is P = 100 and equilibrium quantity is Q = 40,000.

After the quota is imposed, the total domestic supply is now the same as before 30,000 + 100P (since the quota limits imports), but the domestic demand is reduced to 35,000 - 200P. Setting these two equal, we find that the new equilibrium price is P = 112.5 and the new equilibrium quantity is Q = 25,000.

Therefore, domestic producers will supply 25,000 units of sugar after the quota is imposed.

The Domestic Demand and Supply for Sugar Are Qd =

The Domestic Demand and Supply for Sugar Are Q^d =