Autos in Europe sell in two distinct, but interdependent markets: the market for European cars (E-cars) and the market for Japanese cars (J-cars)….
Autos in Europe sell in two distinct, but interdependent markets: the market for European cars (E-cars) and the market for Japanese cars (J-cars). Estimated supply and demand in each market are:
QED = 40 – 6PE + 4PJ QES = 4 + PE
QJD = 36 – 4PJ + 3PE QJS = 6 + 3PJ
(subscripts refer to European and Japanese cars respectively; superscripts refer to Demand and Supply, e.g. QED = demand for European, PJ = price of Japanese cars.)
If a VRA restricts the supply of J-cars in Europe to QJ = 25, then, compared to the equilibrium without the VRA,
a. More E-cars are sold, and PE decreases
b. Fewer E-cars are sold, and PE increases
c. More E-cars are sold, and PE increases
d. Fewer E-cars are sold, and PE decreases
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