Suppose the United States does not produce any baseball hats domestically but im

Question

Suppose the United States does not produce any baseball hats domestically but imports them from foreign producers. Initially, demand is Q 2000-5p and supply (from foreign producers) is Qs- 400+3p. Determine the equilibrium price and quantity. The government then decides that no more than 500 baseball hats should be imported per period and imposes a quota at that level. How does this quota affect the equilibrium price and quantity? Show the solution using a graph and calculate the numerical answer. How might this quota affect the market for cowboy hats (a substitute good)? Please show all work and explain your answers 2.

Explanation / Answer

Solution :- At an equilibrium, Demand = Supply.

2000 - 5P = 400 + 3P

2000 - 400 = 3P + 5P

1600 = 8P

P = 1600 / 8

P = $ 200

Put the value of P = 200 in the demand equation.

Q = 2000 - 5 * 200

Q = 2000 - 1000

Q = 1000.

Conclusion :-

Equilibrium price (P) $ 200 Equilibrium quantity (Q) 1000.

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