Problem 1: Domestic market demand for some good is described by: P = 100 – Q....

Problem 1: Domestic market demand for some good is described by: P = 100 – Q. Domestic supply is described by P = 20 + 2Q.

Illustrate demand and supply. Find the equilibrium for this closed market.
Suppose that the commodity in question is available on the world market at a constant price of 10. If trade is unrestricted, what is the new equilibrium? How much do domestic producers lose if free trade is allowed?
Suppose there is a quota of 50 units allowed in. Illustrate this situation in a diagram. Is there any deadweight loss? Explain.
How do domestic firms benefit from the situation in part 2? Relate your answer to the diagram.

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Expert Solution

Rahul Sunny answered 1 year ago

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