Chapter 9, Problem 1MCQ

To determine

The factor which gives owners the right to supply the goods and services.

Explanation of Solution

The government issues licenses to restrict the quantity in the market. People who buy this license will get the legal right to supply the goods and services in the market.

For example, to limit overfishing in the common areas, the local government issued licenses to some fishermen to catch the fish.

So, the license or option “b” is correct.

Other options are incorrect because:

• 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.
• The supply price is the price at which the producers are willing to accept or sell rides.
• The difference between the supply price and the demand price represents the quota rent.
• Wedge is determined with the help of demand price and supply price and it is related to the quota system.