Question

Price (S) 2300 24002 Quantity Demanded 20,000 19,000 18,000e 17,000 16,000 15,000 14,000 2500 2600 2700 2800 Quantity Supplied 14,000 15,000 16,000 17,000 18,000 19,000 20,000 1. 1. 2900 Questions: a) In the absence of free trade, what is the equilibrium price and quantity traded domestically for Canada's HDTV industry? b) Suppose the international price for a laptop is $2,300. Will Canada export or import HDTVs? How many units? c) Now suppose the Canadian government limits the number of imported HDTVs to 2,000 units. How many units will Canada import and what will be the equilibrium price?

Answer 1

a)

In the absence of free trade, equilibrium occurs when Quantity Demanded = Quantity Supplied

Both are equal to P = 2600

So, Equilibrium price = 2600

Equilbrium Quantity = 17,000

b).

At P = 2300

Quantity Demanded = 20,000

Quantity Supplied = 14,000

Excess Demand = 20000 - 14000 = 6000

Since, there is excess demand, Canada will have to import the extra 6000 units of HDTVs.

c)

Import Quota = 2000 units

So, the difference between quanityt demanded and supplied has to be 2000

This occurs when P = 2500

Canada will import 2000 units and the equilibrium price = 2500