The graphs below show the market for tires in the United States, a nation that i
ID: 1225574 • Letter: T
Question
The graphs below show the market for tires in the United States, a nation that is open to international trade but is assumed to be a price taker unable to affect the world price of tires.
DRAW THE NEW EQUILIBIURM POINT AND THE QS + QUOTA POINT
a. Using the graph above, at the world price of $80 per tire, how many tires will the United States import?
_________ million tires
b. Now suppose the U.S. government imposes a quota as shown in the graph above. Indicate the new market equilibrium with the quota imposed and the domestic quantity supplied (Qs).
Instructions: Use the tools provided 'New Equilibrium' and 'Qs + quota'to indicate the new market price, quantity demanded, and domestic quantity supplied with this quota.
c. As a consequence of this quota, how many tires will the United States import now?
_______ million tires
How many tires will be supplied domestically?
_________ million tires
d. Now suppose instead that the U.S. government imposes a quota with the goal of reducing the number of tires imported by 50% (half of the value in part a). Indicate the new supply with the quota imposed as well as the new market equilibrium and the domestic quantity supplied (Qs) under the new quota.
Instructions: First, drag the 'S + Quota' line to the appropriate location. Then use the tools provided 'New Equilibrium' and 'Qs + quota'to indicate the new market price, quantity demanded, and domestic quantity supplied with this quota.
DRAW THE NEW EQUIIBRIUM POINT AND THE QS+ QUOTA POINT
e. Comparing the first quota with the new quota, we find that the new quota will benefit:
foreign tire producers only. domestic tire producers only. both domestic and foreign tire producers. both domestic consumers and domestic tire producers. Market for Tires New Equilibrium Os quota (60, 280) 220 200 O 180 160 140 O 120 A 100 S+Quota 20 60 100 140 180 220 260 300 80 120 160 200 240 280 Quantity (millions of tires) resetExplanation / Answer
Ans.
(A) At world price $80, Import = Domestic demand - Domestic supply = 220-60 = 160 million tires
(B) Price after quota will be $100 and quantity is 200 tires.
(C) Due to imposing quota, New import by USA = 220-180 = 40 million tires and domestic supply is 180 million tires.
(D) already answered in the below answer.
(E) both domestic consumers and domestic tire producers.
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