Use the following to answer questions:
-(Figure: The Market for Calculators) Use Figure: The Market for Calculators.Assume that S and D represent the domestic demand and supply of calculators,respectively.The world price,P_W,equals $100.The government imposes a quota restricting imports to 25 calculators.The domestic price rises to _____,and the quota rent is equal to area _____.

Question

Use the following to answer questions:

-(Figure: The Market for Calculators) Use Figure: The Market for Calculators.Assume that S and D represent the domestic demand and supply of calculators,respectively.The world price,P_W,equals $100.The government imposes a quota restricting imports to 25 calculators.The domestic price rises to _____,and the quota rent is equal to area _____.

Quizplus · Accepted Answer

When a quota is imposed, the domestic price rises to the level where the quantity demanded equals the quantity supplied domestically plus the quota amount. In this case, the quantity supplied domestically at a price of $100 is 120 and the quantity demanded is 200, resulting in a shortage of 80 calculators. The quota restricts imports to 25 calculators, therefore the domestic supply increases to 145. The new equilibrium price is $120 ($25 higher than the world price) where the quantity supplied domestically and the quota amount sum up to the total quantity demanded domestically.

The quota rent is defined as the difference between the domestic price and the world price multiplied by the quantity of the quota. In this case, the quota rent is equal to the area H+I, which represents the additional surplus received by domestic producers as a result of the quota. Thus, the correct answer is C).

Use the Following to Answer Questions