In the Following Offer Curve Diagram, OC_A Is the Free-Trade

question 31

Multiple Choice

In the following offer curve diagram, OC_A is the free-trade offer curve of country A, OC_B is the free-trade offer curve of country B, and OC'_A (which starts at the origin O, goes to point M and then comes back horizontally to point Y') is the offer curve of country A when it has a restrictive trade policy instrument in place (while country B continues with free trade) . In this situation, the restrictive instrument that country A has employed is __________, and the resulting equilibrium position E' is __________ equilibrium position.

• A) a "voluntary" export restraint (VE
• R) on its exports to country B; an unstable
• B) a "voluntary" export restraint (VE
• R) on its exports to country B; a stable
• C) an import quota; an unstable
• D) an import quota; a stable

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Definitions:

Profit-Maximizing Output

The level of production at which a business achieves the highest possible profit, where marginal cost equals marginal revenue.

Marginal Revenue

Marginal Revenue is the increase in income generated from the sale of one additional unit of a product or service, crucial for determining the optimal level of output for a firm.

Marginal Cost

The rise in costs related to the production of one more unit of a good or service.

Equilibrium Price

The price at which the quantity of goods supplied equals the quantity of goods demanded in the market.