Consider the US market for new cars. To keep things simple, assume that new cars constitute

a homogeneous good (i.e. all new cars are perfect substitutes) and that the market for new

cars is perfectly competitive. The demand for cars by US consumers is characterized by the

following (inverse) demand curve:

PD(Q) = 202Q. (For the remainder of this problem, assume that the quantities are enumerated in millions of units and that prices are denominated in thousands of US dollars.) The supply of cars by US producers is characterized by the following (inverse) supply curve: PS(Q) = 4 + 2Q

. Since US producers are operating under perfect competition, this function also represents the car industry's marginal cost curve. Cars are also produced and consumed in other countries around the world. Again for sim-

plicity, assume that the US car market is small relative to the world market, so that changes

in the US car market do not affect the equilibrium price of cars on the world market. This

world price therefore remains fixed at PW= $8.