S. Klepper, Economics 73-100, Fall 2011
The U.S. textile industry has been lobbying the federal government to protect it from foreign competition. Suppose the government complies by restricting imports of textiles into the United States, causing the price of imported textiles to rise. Assume that imported textiles are imperfect substitutes for U.S. textiles.
Which of the following statements concerning the effects of the import restriction in the short run are correct? Mark true for a correct answer and false for an incorrect one and provide explanations for each of your answers.
_____1. The marginal cost of U.S. textile producers falls at every level of output.
_____2. The market demand curve for U.S. textiles shifts to the right.
_____3. The market supply curve of U.S. textiles shifts to the right.
_____4. The price of U.S. textiles rises.
_____5. The total amount spent by consumers on U.S. textiles increases.