Suppose the following graph depicts the U.S. domestic market for towels. Assume

Question

Suppose the following graph depicts the U.S. domestic market for towels. Assume that the United States only trades towels with China, and that China, with Its comparative advantage In producing towels, charges the world price of $8 per towel. Throughout the question, assume that the amount demanded by any one country does not affect the world price of towels. Notice that in the absence of trade with China, the equilibrium price of a towel is $12. At this price, both the domestic quantity demanded and the domestic quantity supplied equal 24 million towels. Use the graph to help you answer the following questions. Suppose that trade is open between the United States and China and that the United States initially has no tariffs or quotas on towels imported from China. At the world price of $8 per towel, the quantity of towels demanded by U.S. quantity of towels imported from China is Suppose the United States places a quota on imports of towels from China. The quota limits imports of Chinese towels to 12 million The quota shifts the supply of towels available in the United States to the right by the sire of the quota, 12 million towels Note that the original domestic supply curve represents domestic production only. At each in addition

Explanation / Answer

1. Answer to 1st blank: 36 millions

2. Answer to 2nd blank:12 millions

3. Answer to 3rd blank:24 millions

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