Question

The figure shows the U.S. market for 1 carat diamonds. The free trade, the price
in the United States for diamonds is equal to___
and with the quota
illustrated in the figure, the price in the United States is equal to___

A. $2,000;$2,000
B. $2,000;$3,000
C. $2,000;$4,000
D. $4,000;$2,000
E. $4,000;$3,000

Answer 1

Answer:

Option E ($4,000; $3,000) is the appropriate alternative.

Explanation:

• Assuming that America pursues a policy recognized as free-trade by imposing no limits against diamond exportation as well as importation, the amount of those policy balance shall be towards the particular moment whenever domestic supplies exceed domestic demand, in other words, $4,000.
• This same amount of balance would be at a stage wherever American production crosses the domestic production with something like a quota limit of $3,000 unless the U.S sets the allocation.

Some other possibilities don't relate to the type of situation in question. The answer, then, is the right one.