Assume the market for plastic kitchenware in your country has the demand curve P = 2000 – 0.01Q, and the domestic supply curve P = 500 + 0.02Q. For simplicity, we ignore the exchange rate and currency difference here.
- Now suppose the government decides to eliminate tariff but imposes an import quota instead. The total amount of import is limited at 60,000 (assume the foreign producers can actually deliver so many unites).
- Solve for the domestic demand, domestic supply, and market price under the quota?
- Calculate the National Welfare under the quota.