Chapter 2R, Problem 21MCQ

To determine

The question requires us to determine the demand price of swordfish when the government sets a quota.

Explanation of Solution

The following graph represents the demand and supply curves along with the quota sets by the government:

  

Without government interference, the market was at equilibrium at point E where the

Equilibrium price = $14

The equilibrium quantity of swordfish = 9 million pounds.

When government sets a quota of 7 million pounds, the consumers will have to pay a higher demand price as shown in the graph at point A which is equal to $18.

Thus, the demand price will be $18 when the government sets a quota of 7 million pounds of swordfish.

Option “b” is correct.

Economics Concept Introduction

A quote puts an upper limit on the quantity sold or purchased in a market. Quota brings inefficiency in the market by generating a deadweight loss.