Problem: Consider a competitive market served by many domestic and foreign firms. The domestic demand for these firm's product is Qd = 500 - 1.5P. The supply function of the domestic firms is Qsd = 50 +.5P, while that of the foreign firms is Qsf = 250.
1) Determine the equilibrium price and quantity under free trade.
2) Determine the equilibrium price and quantity when foreign firms are constrained by a 100-unit quota.
3) Are domestic consumers better or worse off as a result of free trade?
4) Are domestic producers better or worse off as a result of the quota?