Now suppose that instead of the tariff, an import quota is imposed on the product. Assume that
Question:
Now suppose that instead of the tariff, an import quota is imposed on the product. Assume that the original supply and demand curves with free trade are P= 1,000 − 5Q for demand and 400 + 5Q for supply.
a. Find the price and quantity with the new free trade supply curve.
b. Calculate the new price and quantity with the quota.
c. Now calculate the increase in producer surplus and the decrease in consumer surplus. Is there any difference between the two situations? Why or why not?
d. Why does the production possibilities curve have a negative slope?
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Step by Step Answer:
a Assuming that the market is in equilibrium we can find the free trade price and quantity by setting the supply curve equal to the demand curve and s...View the full answer
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