Chapter 9, Problem 4MCQ

To determine

The question requires us to determine the supply price.

Explanation of Solution

A quote puts an upper limit on the quantity sold or purchased in a market. Quota brings inefficiency in the market by generating a deadweight loss.

From the given diagram:

Without government interference, the market was at equilibrium at point E where the

Equilibrium price = $6

The equilibrium quantity = 1800 units

If the government sets a quota of 1000, then the consumers will have to pay a higher demand price as shown in the graph which is equal to $8 while the producers have to accept a lesser supply price which is equal to $4.

When the government sets a quota of 1000 units, the supply price will be $4.

Thus, option “b” is correct.

Economics Concept Introduction

The producers are willing to accept a price, at which they sell their products that price is considered the supply price.