Exhibit 17-8
-If the country in Exhibit 17-8 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 17-8 
-If the country in Exhibit 17-8 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

The import quota of 50 units per month will limit the amount of imports to 50 units, which is below the initial equilibrium quantity of 75 units. Since domestic producers will now face less competition from imports, they will increase their production. The new domestic equilibrium quantity will be where the new supply curve (the original supply curve plus the amount of the import quota) intersects the demand curve, which is at a quantity of 125 units. Therefore, domestic production will increase from 100 to 125 units per month, and there will be no change in imports (remaining at 50 units per month).

Exhibit 17-8 -If the Country in Exhibit 17-8 Is Initially Trading Without