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What is the effect of a production quota on consumer surplus? On producer surplus?

What is the effect of a production quota on consumer surplus? On producer surplus?
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Answer #1

Consumer surplus is the area below the demand curve and above the price line and producer surplus is the area below the price line and above the supply curve.

Before production quota with free market-

Consumer surplus = Area A+B+C

Producer surplus = Area D+E.

After quota was set at Q2-

Consumer surplus = Area A

Producer surplus = Area B+D.

Dead weight loss = C+E.

It shows that after quota consumer surplus decreased by area B+C and producer surplus increased by area B and decrease by area E. Area B is bigger than area E.

So quota will decrease the consumer surplus and increase the producer surplus.

#Please rate positive...Thank you

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