Embed Size (px)
DESCRIPTION
Module 9 Quantity Controls. What you will learn in this Module:. What are quantity controls? How do quantity controls create problems and make a market inefficient? Who benefits and who loses from quantity controls? Why they are used despite their well-known problems?. - PowerPoint PPT Presentation
Citation preview
Module 9 Quantity Controls
What are quantity controls?
How do quantity controls create problems and make a market inefficient?
Who benefits and who loses from quantity controls?
Why they are used despite their well-known problems?
What you will learn in this Module:
Quantity Controls: Terms to KnowQuantity Control or Quota: upper
limit on the quantity of some good that can be bought or sold
License: gives the owner the right to supply a good or service
Demand price: the price at which the consumers will want to buy (demand) that quantity
Supply price: the price at which producers will want to supply that quantity
Why Impose Quantity Controls?1. In addition to controlling p_______, the government can
also decide that the e_____________q_________ is, for some reason, too high.
2. Government determines a q__________control, or q_______: an upper limit on the quantity of some good that can be bought or sold.
3. The total amount of the good that can be legally transacted is the q________l_______.
4. A quota is set and a license is given (or auctioned) to producers.
5. A l__________ gives its owner the right to supply the good.
With a partner, answer the following:What are some examples of quantity controls?Why would the government want to limit the quantity of a
good that can be bought or sold? Who would benefit from this?
Why Impose Quantity Controls?1. In addition to controlling prices, the government can also
decide that the equilibrium quantity is, for some reason, too high.
2. Government determines a quantity control, or quota: an upper limit on the quantity of some good that can be bought or sold.
3. The total amount of the good that can be legally transacted is the quota limit.
4. A quota is set, a license is given (or auctioned) to producers.
5. A license gives its owner the right to supply the good.
With a partner, answer the following:What are some examples of quantity controls?Why would the government want to limit the quantity of a
good that can be bought or sold? Who would benefit from this?
Reverse QuestionsHow many taxi rides will
consumers demand if the price is $5.00 per ride? Changes to….
At what price will consumers want to buy 10 million taxi rides per year?
How many pairs of socks will consumers demand if the price is $3.00 per pair? Changes to…..
At what price will consumers want to buy 15 millions pairs of socks?
Market for Taxi Rides without Gov’t Controls
Fare Per Ride
Quantity of RidesQuantity demande
d
Quantity Supplied
$7.00
6 14
6.50 7 13
6.00 8 12
5.50 9 11
5.00 10 10
4.50 11 9
4.00 12 8
3.50 13 7
3.00 14 6 6 7 8 9 10 11 12 13 14
7.00
6.50
6.00
5,50
5.00
4.50
4.00
3.50
3.00=
=
S
D
E
Fare per ride
Quantity of Rides (Millions per year)
The Effect of Quotas on the Market Taxi Rides
Fare Per Ride
Quantity of RidesQuantity demande
d
Quantity Supplied
$7.00
6 14
6.50 7 13
6.00 8 12
5.50 9 11
5.00 10 10
4.50 11 9
4.00 12 8
3.50 13 7
3.00 14 6
The city gov’t limits the quantity of taxi rides to 8 million per year.
The Effect of Quotas on the Market Taxi Rides
Fare Per Ride
Quantity of RidesQuantity demande
d
Quantity Supplied
$7.00
6 14
6.50 7 13
6.00 8 12
5.50 9 11
5.00 10 10
4.50 11 9
4.00 12 8
3.50 13 7
3.00 14 6
The city gov’t limits the quantity of taxi rides to 8 million per year.
S
6 7 8 9 10 11 12 13 14
7.00
6.50
6.00
5,50
5.00
4.50
4.00
3.50
3.00
=
=
D
E
A
B
The Wedge
Dead weight Loss
Quota
1. A quantity control, or quota, drives a w_______ between the demand price and the supply price of a good.
2. Suppose at the quota of 8 million rides:
Demand Price = $_______Supply Price = $_________
3. If buyers are willing to pay $6, but sellers can produce at cost $4, each owner of a license to operate a taxi earns the difference of $_______.
4. And this is the amount that any taxi operator would pay to have a license.
5. Quota rent: The d__________ between the d__________and s__________ price
6. It is the e____________ that accrue to the license-holder from ownership of the right to sell the good.
6 7 8 9 10 11 12 13 14
7.00
6.50
6.00
5,50
5.00
4.50
4.00
3.50
3.00
==
D
E
A
B
The Wedge
Dead weight Loss
Quota
The Effect of Quotas on Market Taxi Rides
1. A quantity control, or quota, drives a wedge between the demand price and the supply price of a good.
2. Suppose at the quota of 8 million rides:
Demand Price = $6Supply Price = $4
3. If buyers are willing to pay $6, but sellers can produce at cost $4, each owner of a license to operate a taxi earns the difference of $2.
4. And this is the amount that any taxi operator would pay to have a license.
5. Quota rent: The difference between the demand and supply price
6. It is the earnings that accrue to the license-holder from ownership of the right to sell the good.
6 7 8 9 10 11 12 13 14
7.00
6.50
6.00
5,50
5.00
4.50
4.00
3.50
3.00
==
D
E
A
B
The Wedge
Dead weight Loss
Quota
The Effect of Quotas on Market Taxi Rides
Inefficiencies of Quantity Controls1. Missed o_________________: point at which the buyer is willing to buy the good at a price that the seller is willing to accept, but it doesn’t happen because it is forbidden by the q__________. This is known as d___________ l_______ Anytime the demand price at a given quantity is not equal to the supply price at that quantity, there will be missed opportunities.
2. Incentives for _____________activities.
Suppliers know that additional units could be supplied and buyers could be found. This kind of overproduction would violate the q________.
Are there illegal taxis in New York City?
Fare Per Ride
Quantity of RidesQuantity demande
d
Quantity Supplied
$7.00
6 14
6.50 7 136.00 8 125.50 9 115.00 10 104.50 11 94.00 12 83.50 13 73.00 14 6
Inefficiencies of Quantity Controls1. Missed opportunities: point at which the buyer is willing to buy the good at a price that the seller is willing to accept, but it doesn’t happen because it is forbidden by the quota. This is known as deadweight loss Anytime the demand price at a given quantity is not equal to the supply price at that quantity, there will be missed opportunities.
2. Incentives for illegal activities.
Suppliers know that additional units could be supplied and buyers could be found. This kind of overproduction would violate the quota.
Are there illegal taxis in New York City?
Fare Per Ride
Quantity of RidesQuantity demande
d
Quantity Supplied
$7.00
6 14
6.50 7 136.00 8 125.50 9 115.00 10 104.50 11 94.00 12 83.50 13 73.00 14 6
Poachers Man, Poachers!Quantity controls are
enacted in the fishing industry to protect species, among other goals.
Draw a correctly labeled graph of the market for bluefish tuna. Draw and label a vertical line showing an effective quota.
Label demand price, supply price, deadweight loss, and give the quota rent.
Poachers Man, Poachers!Quantity controls are
enacted in the fishing industry to protect species, among other goals.
Draw a correctly labeled graph of the market for bluefish tuna. Draw and label a vertical line showing an effective quota. Label demand price, supply price, deadweight loss, and give the quota rent.
D
S
Price
Quantity
Pe
Qe
E
Demand Price
Supply Price
Dead weight Loss
Demand Price – Supply price = quota rent
Quota
Ahhh the End of Another Section
Section 2 Test is Tuesday September 10th It covers modules 5-9The test is multiple choice and free response.Be prepared to hand in any assignment that was
given for homework when asked on Friday.
