Question 8 (1 point)

The market for USB flash drives in Country C is perfectly competitive and is in equilibrium.

Domestic demand is given by Q^d = 300 - 4P and domestic supply is given by Q^s = 2P.

The world price for flash drives is $20.

Country C wishes to 'protect' its domestic flash memory industry. One policy option is to impose a tariff on all USB flash drives imported into country C from country A (the only other country that produces flash drives). The newly-elected government of country C wishes to avoid tariffs, as it was elected partially on a 'free-trade' (no tariff) platform.

Country C agrees to forego any tariff on flash drives if country A sellers 'voluntarily' restrict sales of flash drives into country C. Country A agrees to sell no more than 120 flash drives to country C buyers.

The introduction of the quota (V.E.R) causes a change in Consumers' Surplus (CS). What is the dollar value of this change?

Question 8 options:

1)

Consumers' Surplus increases by $2000

2)

Consumers' Surplus decreases by $1800

3)

Consumers' Surplus increases by $1800

4)

Consumers' Surplus decreases by $2000

5)

Consumers' Surplus decreases by $1200