Answer to Question #58860 in Macroeconomics for Frances Fitzgerald
i. Assume Ireland is completely open to trade. What is the equilibrium price and quantity consumed? How much is produced domestically and how much is imported? Illustrate you answer on a diagram.
ii. Now consider the effect of an import quota of 400 boxes. What happens to the price of strawberries and the quantity consumed? How much is produced domestically and how much is imported? Illustrate you answer on a diagram.
iii. Who wins and who loses from the imposition of the quota? Discuss the effects on consumers, domestic producers and importers in terms of welfare changes. Illustrate you answer on a diagram.
i. If Ireland is completely open to trade, then the equilibrium price will be $15 and quantity consumed will be Qd = 1225 - 15*15 = 1,000 units. The amount of strawberries produced domestically is Qs = 60 + 20*15 = 360 and the amount imported is Qi = 1,000 - 360 = 640.
ii. If the import quota of 400 boxes is imposed, then 400 boxes will be imported and produced domestically will be Qs = Qd - 400,
60 + 20P = 1225 - 15P - 400,
35P = 765
P = $21.86 is the price of strawberries.
The amount produced will be: Qs = 60 + 20*21.86 = 497 boxes.
iii. Producers will win and consumers will lose from the imposition of the quota.
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