The market for leather shoes is served by both domestic (S.A.) and foreign (F) producers. Thedomestic producers have been complaining that foreign producers are dumping shoes onto thelocal market. As a result, parliament is very close to enacting a policy that would completelyprohibit sales by foreign manufacturers of leather shoes in the S.A. market. The demand curveand relevant supply curves for the leather shoe market are as follows:QD = 50,000 - 500PQSA = 6000 + 150PQF = 2000 + 50Pwhere Q = thousands of pairs of shoes per year, P = price per pair, QSA = South Africansupply and QF = Foreign supply.2.1 Currently there are no restrictions covering leather shoes. What is the equilibrium priceand quantity?
Question
The market for leather shoes is served by both domestic (S.A.) and foreign (F) producers. Thedomestic producers have been complaining that foreign producers are dumping shoes onto thelocal market. As a result, parliament is very close to enacting a policy that would completelyprohibit sales by foreign manufacturers of leather shoes in the S.A. market. The demand curveand relevant supply curves for the leather shoe market are as follows:QD = 50,000 - 500PQSA = 6000 + 150PQF = 2000 + 50Pwhere Q = thousands of pairs of shoes per year, P = price per pair, QSA = South Africansupply and QF = Foreign supply.2.1 Currently there are no restrictions covering leather shoes. What is the equilibrium priceand quantity?
Solution
To find the equilibrium price and quantity, we need to set the quantity demanded (QD) equal to the total quantity supplied (QSA + QF) and solve for the price (P).
The total quantity supplied is QSA + QF = (6000 + 150P) + (2000 + 50P) = 8000 + 200P.
Setting this equal to the quantity demanded gives:
50,000 - 500P = 8000 + 200P.
Solving this equation for P gives:
500P + 200P = 50,000 - 8000,
700P = 42,000,
P = 42,000 / 700 = 60.
Substituting P = 60 into the demand equation gives the equilibrium quantity:
QD = 50,000 - 500*60 = 20,000.
So, the equilibrium price is 60 and the equilibrium quantity is 20,000 pairs of shoes per year.
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