Suppose that the domestic demand and supply for t-shirts in a small open economy are given by: Q=50-P(demand) and Q=25-2P (Supply) [where q is quantity and P is price]
1.) If the world price is 10, what is the free trade level of imports?
2. The county imposes a quota of 11 units. How much will the domestic price rise?
3) What will the welfare effects be of a quota of 11 units on this country?
4) Suppose that instead this country negotiates a VER of 11 units with its chief foreign supplier. What are the welfare effects of this policy?