5. Import quotasThe following graph shows the U.S. domestic market for jackets.Use this graph to answer the questions that follow.PRICE (Dollars)2018161412108CD6420048Domestic SupplyDomestic Demand1216 2024 28QUANTITY (Millions of jackets)With no trade, the equilibrium price of a jacket is $supplied equalmillion jackets.32 36 40Domestic DemandDomestic SupplyPrice,(World)Price (Quota)(?)At this price, both the domestic quantity demanded and the domestic quantity Suppose now that the United States trades with China but neither country can affect the world price of jackets. Initially, the United States does notuse any trade barriers (neither tariffs nor quotas) on jackets imported from China. Assume that China has a comparative advantage in producingjackets and charges the world price of $8 per jacket.On the graph, use the grey line (star symbol) to indicate the world price of jackets.At the world price of $8 per jacket, U.S. consumers will demandand the U.S. will importmillion jackets from China.million jackets, U.S. manufacturers will supplySuppose now that the United States imposes a quota on imports of jackets from China, which limits imports of Chinese jackets to 0 million. (Hint: Theoriginal domestic supply curve represents domestic production only.)On the previous graph, use the purple line (diamond symbol) to indicate the new U.S. price under the quota.Under the quota, the price of jackets is $demandmillion jackets.per jacket, U.S. producers supplyCompared to conditions under free trade, U.S. manufacturers selljacket quota, while U.S. consumers buyjackets and payjackets and receivemillion jackets,million jackets, and U.S. consumersprice after the imposition of theprice after the imposition of the jacket quota.Supporters of the jacket quota over free trade argue that the trade restriction will save jobs in the United States. What are the potential pitfalls ofsuch an argument? Check all that apply.The costs to domestic jacket consumers may outweigh the benefits of jobs saved in the jacket industry.China may retaliate, imposing restrictions on exports from the United States, thereby generating unemployment in U.S. exportindustries.Trade restrictions simply reshuffle jobs by increasing employment in the protected industry and reducing employment in other industries.Consumers will likely divert large amounts of scarce resources toward lobbying for the removal of the quota.

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Suppose now that the United States trades with China but neither country can affect the world price of jackets. Initially, the United States does not use any trade barriers (neither tariffs nor quotas) on jackets imported from China. Assume that China has a comparative advantage in producing jackets and charges the world price of $8 per jacket. On the graph, use the grey line (star symbol) to indicate the world price of jackets. At the world price of $8 per jacket, U.S. consumers will demand and the U.S. will import million jackets from China. million jackets, U.S. manufacturers will supply million jackets,

Suppose now that the United States trades with China but neither country can affect the world price of jackets. Initially, the United States does not use any trade barriers (neither tariffs nor quotas) on jackets imported from China. Assume that China has a comparative advantage in producing jackets and charges the world price of $8 per jacket. On the graph, use the grey line (star symbol) to indicate the world price of jackets. At the world price of $8 per jacket, U.S. consumers will demand and the U.S. will import million jackets from China. million jackets, U.S. manufacturers will supply million jackets,

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter4: Supply And Demand: An Initial Look

Section: Chapter Questions

Problem 3TY

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