Consider a country that initially consumes 100 pairs of shoes per hour, all of which are imported. The price of shoes is $40 per pair before a ban on importing them is imposed. Use a graph to explain what happens to the price of shoes and the quantity of shoes consumed after a total ban on imports.
Consider a country that initially consumes 100 pairs of shoes per hour, all of which are imported. The price of shoes is $40 per pair before a ban on importing them is imposed. Use a graph to explain what happens to the price of shoes and the quantity of shoes consumed after a total ban on imports.
To analyze the effect of a total ban on imports, we can use a supply and demand graph for shoes. On the graph, the y-axis represents the price of shoes, and the x-axis represents the quantity of shoes.
Initially, before the ban on imports, the price of shoes is $40 per pair, and the quantity consumed is 100 pairs per hour. This can be represented by point A on the graph.
When a ban on importing shoes is imposed, the supply of shoes decreases to zero. This means no shoes are available for sale in the domestic market. As a result, the supply curve shifts to the left, which can be represented by a vertical line at zero quantity on the graph.
Now, let's see what happens to the equilibrium price and quantity.
Since there is no supply of shoes, the market price will rise in response to the scarcity of shoes. The price will increase until a new equilibrium point is reached where the quantity demanded is equal to zero, representing no consumption of shoes. This can be represented by point B on the graph.
Therefore, after the total ban on imports, the price of shoes increases significantly, while the quantity consumed drops to zero.
In summary, the graph visually illustrates that a total ban on imports leads to a significant increase in the price of shoes and a complete elimination of shoe consumption in the domestic market.