Investor Ian is trying to decide whether or not he should become a silent partne

Question

Investor Ian is trying to decide whether or not he should become a silent partner in a business that specializes in importing furniture to Ecovia. In the absence of international trade, sofas are produced domestically and sell for $800. Ian knows that he can purchase foreign-produced sofas, ship them to Ecovia, and sell them for $500 while still making a profit.

Based on the graph below, how would Ian's decision to move forward with his import business affect the market for sofas? Specifically, what would happen to domestic production based on the Supply function?

Would the Ecovian entrepreneurs and workers involved in this industry be better off as a result of these imports? Explain.

What would happen to domestic consumption based on the Demand function? Would the Ecovian consumers be better off as a result of these imports? Explain.

Based on the graph, how many sofas would be imported? Would you recommend that the government of Ecovia allow Ian to import sofas, or should they use trade restrictions (a tariff or import quota) to reduce or even eliminate imports? Explain

Explanation / Answer

as from the graph, for $500 the demand of sofa will be much grater than the supply .so production of sofa has to be increased .as this is considered as shortage situation will lead to higher equilibrium price .market of sofa will grow more and more. Domestic production will be diminished if imported cheap supply will be there.this will affect GDP(gross domestic production ) of country. For the Ecovian entrepreneurs and workers it will be worst situation .As this action will decrease the requirement of man power in country that's why mostly country encourages the foreign investment in their own country.For entrepreneurs there will be no better half for perform their innovative ideas. demand function will lift up.Domestic consumption will increase. this will be the best situation for consumers .They will get the same product for less number of price .so more number of sofas will be sold in the same time period. Number of sofa will be imported= 750, while demanded= 1250;This will lead to the higher equilibrium price this is not a ideal situation for the country and it's domestic production market . Government won't allow this to happen because this will affect the GDP of country which shows the progress of country year by year. GDP is the market value of all officially recognized final goods and services produced within a country for a given period of time. GDP per capita is often considered an indicator of a country's living standard.

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