Much like a price floor, the quota prevents the market from reaching its natural equilibrium by keeping domestic prices above the global market price. Since quotas interfere with a market's natural level of price, demand, and production, they are often seen as hurting trade and the economy even if domestic producers enjoy higher prices. By regulating the quantity produced, the government can influence the price level. Quotas can also be used to limit the production of a good. A quota can be used to regulate or restrict trade by limiting the number of imports and exports of a certain good. If the price is too high, consumers will not be able to afford it. If the price of a good falls too low it becomes difficult for producers to remain competitive and might force them out of business. Quotas are a type of protectionism meant to keep prices from falling too low or rising too high. Price Determination in a Competitive MarketĪ quota is a regulation set in place by the government that restricts the quantity of a good over a certain period.ĭeadweight loss is the combined loss of consumer and producer surplus due to the misallocation of resources.Market Equilibrium Consumer and Producer Surplus.Determinants of Price Elasticity of Demand.Cross Price Elasticity of Demand Formula.Effects of Taxes and Subsidies on Market Structures.Monopolistic Competition in the Short Run.Monopolistic Competition in the Long Run.Behavioural Economics and Public Policy.
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