Question

What happens to social surplus in the iPhone market described there if the quantity of iPhones sold in the market is restricted to 2 iPhones? Why does this happen?

do not handwritten . please type it

Answer 1

When quantity of iPhones sold is restricted to 2 units, then there will be a shortage of iPhones. Hence, price will rise much higher than it's equilibrium quantity, as shown in the diagram.

Consumer will pay a price of Pb.

Quota rent will either accrue to government of the license holders who can be sellers as well.

Total social surplus = consumer surplus+ qouta rent + producer surplus.

With a quota restriction, the market will witness a fall in total social surplus and give rise to Dead weight loss. Dead weight loss is loss of surplus/welfare arising from market inefficiency which in this case is a quota/restriction.