Government in the Market Place
Consider a competitive market served by many domestic and
foreign firms. The domestic demand for these firms’ product is Qd = 500 -1.5P.
The supply function of the domestic firms is QSD = 50 + 0.5P, while that of the
foreign firms is QSF = 250.
a. Determine the equilibrium price and quantity under free
trade.
b. Determine the equilibrium price and quantity when foreign
firms are constrained by a 100-unit quota.
c. Are domestic consumers better or worse off as a result of
the quota?
d. Are domestic producers better or worse off as a result of
the quota?
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