The demand for jeans in a country is given by D = 100 - 0.6P,where P is the price of a pair of jeans.Supply by domestic producers is given by S = 20 + 0.4P.The world price of a pair of jeans equals $30 and this economy is open to trade.If a quota of 40 pairs is placed on jeans imports,the quantity of jeans demanded domestically will change from ________ pairs with no quota to _______ pairs with the quota.

Question

Quizplus · Accepted Answer

Without the quota, the domestic market is open to trade, so the price of jeans will be equal to the world price ($30).

Setting D = S, we get:

100 - 0.6P = 20 + 0.4P

0.6P + 0.4P = 80

P = $80/1 = $80

So, the quantity of jeans demanded domestically is:

D = 100 - 0.6P = 100 - 0.6($80) = 52

With the quota of 40 pairs on jeans imports, domestic producers can supply the entire domestic market (52 pairs), so there will be no imports.

Setting S = 52, we get:

52 = 20 + 0.4P

0.4P = 32

P = $32/0.4 = $80

So, the quantity of jeans demanded domestically is still:

D = 100 - 0.6P = 100 - 0.6($80) = 76

Therefore, the quantity of jeans demanded domestically will change from 52 pairs with no quota to 76 pairs with the quota, which is answer choice C.

The Demand for Jeans in a Country Is Given by D