The amount that consumers are willing to pay for the quota-limited quantity is the demand price. The policy of reducing quantity is known as a quota, a restriction imposed by the government on the number of goods bought and sold.
To examine the impact of this quota on individual stakeholders and on the market as a whole, we can calculate the evolution of consumer surplus, producer surplus, and market surplus. Before, the market surplus has not been described before, as this process should take place frequently. Make sure you understand how to find the following values:
Consumer surplus = $3.47 million
Producer surplus = $5.75 million
Market surplus = $8.5 million
After, the post-policy market surplus can be calculated by:
Consumer surplus = $1.2 million
Producer surplus = $5.9 million
Market surplus = $7.1 million
When comparing the market surplus first and the market surplus afterward, note that the impact of a quota is similar to that of a price floor. The key difference is that the government imposes a quantity restriction and the price changes as a by-product, whereas with price restrictions the government imposes a price restriction and the quota quantity changes as a product.
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