Question

# b. Suppose the government wants to set a quota that states that only 8 gizmos can...

b. Suppose the government wants to set a quota that states that only 8 gizmos can be exchanged. What is the demand price and what is the supply price at this quota limit?

c. At the quota limit of 8 gizmos, what is the quota rent available to sellers of gizmos?

d. Suppose instead that the government increases the production quota to 16 gizmos. Under this regulation, at what price will gizmos be purchased?

The table below shows the demand and supply schedules for gizmos.

 Price per Gizmo Quantity of Gizmos Demanded (Qd) Quantity of Gizmos Supplied (Qs) \$1.00 17 2 \$1.50 16 4 \$2.00 15 6 \$2.50 14 8 \$3.00 13 10 \$3.50 12 12 \$4.00 11 14 \$4.50 10 16 \$5.00 9 18 \$5.50 8 20

Firstly from the above question table , below is the demand and supply curve for the Gizmos:

NOW , from the above graph , we can see that the equilibrium price per Gizmo = \$3.50 and equilibrium quantity = 12 Gizmos.

(B) Now suppose the government wants to set a quota that states that only 8 Gizmos can be exchanged. Then, at this much quantity of Gizmos , demand price = \$5.50 and Supply price = \$2.50 . (As this we can see in the above graph).

(C) Suppose the government increase the quota limit to 16 Gizmos .Then ,the purchase price would be reduced to \$1.50. And supply price increases to \$4.50. (This we can see in the above graph).

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