Question

Consider the market for widgets. Widgets can be produced in the United States or abroad. Assume that U.S. consumers wish to buy the least expensive widgets possible. However, if widgets from all countries cost the same, consumers would prefer to buy domestically. Price Quantity Demanded Quantity Supplied Domestically Quantity Supplied by Importers If Trade Is Allowed $6 13,000 2,000 8,000 $7 12,000 4,000 8,000 $8 11,000 6,000 8,000 $9 10,000 8,000 8,000 $10 9,000 9,000 8,000 $11 8,000 10,000 8,000 If there is no international trade allowed in the market, what price would we expect?

Answer 1

Answer:

$10

Explanation:

Price    Q Demanded      Q Supplied Domestically    Q Supplied by Importers  $6              13,000                        2,000                                        8,000

$7               12,000                       4,000                                        8,000

$8               11,000                        6,000                                        8,000

$9               10,000                       8,000                                        8,000

$10              9,000         =             9,000                                       8,000

$11               8,000                       10,000                                        8,000

If there is no international trade allowed, then we should look for the price at which the quantity demanded is equal to the quantity supplied by domestic producers. At $10 per widget, the total quantity demanded is 9,000 units and the total quantity supplied by domestic producers is 9,000 units.