The following figure shows the domestic U.S.market for bananas and the global market for bananas.The domestic supply curve is given by SUPPLY US .With free trade,the equilibrium output in the U.S.market is Q.The import quota imposed by the government is equal to 0A.
Figure 10-5
-Refer to Figure 10-5.Which of the following should necessarily be true in the absence of a quota?
A)EH = 0C + CQ
B)EH = 0Q
C)0Q = 0Q'
D)0A + BC = FG

Question

The following figure shows the domestic U.S.market for bananas and the global market for bananas.The domestic supply curve is given by SUPPLY US .With free trade,the equilibrium output in the U.S.market is Q.The import quota imposed by the government is equal to 0A.
Figure 10-5 
-Refer to Figure 10-5.Which of the following should necessarily be true in the absence of a quota?
A)EH = 0C + CQ 
B)EH = 0Q 
C)0Q = 0Q' 
D)0A + BC = FG

Quizplus · Accepted Answer

In the absence of a quota, there are no restrictions on the amount of bananas that can be imported. Therefore, the domestic market price will be equal to the world price (represented by line EH), which is determined by the intersection of global demand and supply curves. At this price, the quantity demanded by U.S. consumers (Q) will be supplied by both domestic and imported bananas (represented by point C). Therefore, EH = 0Q.

The Following Figure Shows the Domestic U