The figure below shows the demand (D) and supply (S) curves of a good produced domestically in an economy as well as traded in the international market. Figure 20.1
In the figure,
P1: Price of the good in the international market.
P2: Price of the good in the domestic market after the imposition of tariff by the government.
P3: No-trade price of the good in the domestic market.
According to Figure 20.1, if the international price of the good is P1, which of the following statements is true?
A) The domestic market is in equilibrium.
B) There is an excess supply in the domestic market by the amount Q4 - Q2.
C) The country will export Q3 - Q1 units of the good.
D) There is an excess demand of Q4 - Q2 units in the domestic market.
E) The country needs to import Q5 - Q1 units of the good to satisfy domestic demand.
Correct Answer:
Verified
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