The question requires us to draw a graph representing a quota, the demand
Explanation of Solution
The following graph represents the supply-demand diagram with quota:
Here,
Without quota, the market is producing at point E where:
Equilibrium quantity = Qe
When the government sets the quota at Qquota,
The demand price = Pd
The supply price = Ps
Quota rent = demand price − supply price = Pd − Ps
A quote puts an upper limit on the quantity sold or purchased in a market. Quota brings inefficiency in the market by generating a
The difference between the supply price and the demand price represents the quota rent.
Chapter 9 Solutions
Krugman's Economics For The Ap® Course
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