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Question: We focus on the market of a particular good in Country A. Back in 2019, there were many (domestic) suppliers from Country A and many (foreign) suppliers from Country B all serving consumers in Country A. We ignore consumers of this good in any country other than Country A. The market is assumed to be perfectly competitive. Due to a trade war, all foreign suppliers from Country B disappeared. Consequently, the market supply was halved after the trade war at every possible market price.
Comparing the competitive equilibria before and after the trade war, do you think the quantity in the new equilibrium is higher than, equal to, or lower than half the quantity in the old equilibrium? Explain your reasoning. Your answer should not be specifific to any particular demand and supply curves.
Impose a protectionist policy such as a tariff - domestic market following the removal of an import quota?
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