Suppose the market for steel is expressed as follows:  Domestic demand: p = 40 - 0.2q, or q = 200 - 5p  Domestic supply: p = 0.2q, or q = 5p  Domestic supply (foreign): p = 0.1q, or q = 10p  a) What is the equilibrium price and quantity if there is free trade, with no restriction on imports?  b) What is the equilibrium price and quantity if the government imposes a binding import quota of 20 units? Depict parts a and b on a single graph. c) How are US steel firms affected by the quota? US automakers? Explain briefly.

Question

Suppose the market for steel is expressed as follows: 

Domestic demand: p = 40 - 0.2q, or q = 200 - 5p 

Domestic supply: p = 0.2q, or q = 5p 

Domestic supply (foreign): p = 0.1q, or q = 10p 

a) What is the equilibrium price and quantity if there is free trade, with no restriction on imports? 

b) What is the equilibrium price and quantity if the government imposes a binding import quota of 20 units? Depict parts a and b on a single graph.

c) How are US steel firms affected by the quota? US automakers? Explain briefly.

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