Exhibit 19-6

-If the country in Exhibit 19-6 is initially trading without restrictions at a world price of $2.00 and an import quota of 50 units per month is enacted,

Question

Exhibit 19-6
 
-If the country in Exhibit 19-6 is initially trading without restrictions at a world price of $2.00 and an import quota of 50 units per month is enacted,

Quizplus · Accepted Answer

With an import quota of 50 units per month, the country can only import up to 50 units per month at the world price of $2.00. Before the quota, the country was importing 25 units per month, so imports will not increase beyond the quota limit of 50 units. This means that the remaining demand (i.e. 75 units per month) will need to be met by domestic production.

Before the quota, domestic production was 100 units per month. With an additional demand of 75 units per month, domestic production will increase to 100 + 75 = 175 units per month. Therefore, the correct answer is D) domestic production will increase from 100 to 125 units per month.

Exhibit 19-6 -If the Country in Exhibit 19-6 Is Initially Trading Without