U2 M9 Quantity Controls

A quantity Control, or quota, is an upper limit on the quantity of some good that can be bought or sold.

The total amount of the good that can be legally transacted is the quota limit.

A license gives its owner the right to supply a good.

The Demand price: price consumers will demand at that quantity

The supply price: price producers will supply at that quantity

If you put a quota on a quantity (taxi medallion example)

• decreased supply increases the price demanded @ lower quantity

• quota rent: the wedge (vertical length between price supplied vs price demanded)

• Deadweight Loss: amount of transactions that would’ve happened but didn’t due to government intervention

  • calculate the area of the triangle forming between the quota, supply curve and demand curve (for deadweight in price)

    • in units (difference between equilibrium quantity and quota quantity)