Use the following to answer questions :
Figure 18-3
-If the world price were $1.00 in Figure 18-3, what size quota would be required to a maintain domestic supply of 200 units?
A)0 units.
B)50 units.
C)100 units.
D)150 units.
E)200 units.

Question

Use the following to answer questions :
Figure 18-3 
-If the world price were $1.00 in Figure 18-3, what size quota would be required to a maintain domestic supply of 200 units?
A)0 units. 
B)50 units. 
C)100 units. 
D)150 units. 
E)200 units.

Quizplus · Accepted Answer

If the world price were $1.00, the domestic price would be $1.20 according to the diagram. In order to maintain a domestic supply of 200 units, the domestic producers would have to produce 200 units at the higher domestic price of $1.20. However, at this higher price, the domestic quantity demanded would only be 150 units (point B on the diagram). Therefore, a quota of 50 units (difference between the desired 200 units and the domestic quantity demanded of 150 units) would be necessary to prevent imports from exceeding domestic production.

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