Econ 281 Chapter10c - In place of a price floor the...

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1 In place of a price floor, the government can  instead impose a PRODUCTION QUOTA Production Quotas restrict the quantity  supplied of any good Ie: Taxi Cabs Ie: Safeway stores (unintentional)
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2 Production Quotas have similar effects to price  floors: There will be excess supply (some will want to  supply but be prevented) Quantity purchased will decrease Consumer surplus will decrease Some consumer surplus will transfer to  producers Producer surplus may increase or decrease There will be a deadweight loss
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3 Production Quota Demand Old Consumer Surplus Q P Q* P* A B C D Old Producer Surplus Supply Production Quota P 1
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4 Production Quota: Maximize Producer Surplus Demand New Consumer Surplus Q (L) P (W) Q d P* A B C D Q s New Producer Surplus Supply Production Quota Excess Supply Q d Deadweight Loss P 1
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5 Quota: Minimize Producer Surplus Demand New Consumer Surplus Q P Q d P* A B C D Q s New Producer Surplus Supply Quota Excess Supply Q s P 1
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6 Quota: Minimize Producer Surplus Demand Q P Q d P* Y X Q s Supply Quota Excess Supply Q s Deadweight Loss=Y-X P 1
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7 Production Quotas effect on producer surplus  depends on which producers are allowed to  produce: Producers with lowest willingness to produce 
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