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The supply and demand functions of a market are as follows:
Qs = 18 P - 7W - 10
Qd = 120 - 2P + .05M
Where W is the wage level in the foreign country in which the good is manufactured, and M is the income level (in thousands) in the United States. Currently the wage level is $4.00 and the US income level is $40.
a. What are the current equilibrium quantity and price?
b. If the foreign wage rate increases to $6, what will be the new equilibrium quantity and price?
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