Questions and Answers
What is the quota rent?
The difference between the demand price and the supply price at the quota limit.
What do effective price floors cause?
Surplus, difference from point where floor and supply curve intersect and where floor and demand curve intersect.
What is the amount that consumers are willing to pay for the quota quantity?
Demand price.
Which of the following is a quota? (Select all that apply)
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What is the impact of a price ceiling set above the market price?
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The quota rent for a New York taxicab owner is equal to the market price of the license that allows him to drive the cab.
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What can price controls result in?
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What happens if a price ceiling is imposed above the equilibrium price?
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What is a price ceiling?
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What is the formula for Price Elasticity using the Midpoint theorem?
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Study Notes
Quota Rent
- Quota rent represents the difference between demand price and supply price at the quota limit.
Price Floors
- Effective price floors create a surplus by establishing a difference between the intersection of the supply curve and the price floor, and the intersection of the demand curve and the price floor.
Demand Price
- The demand price indicates the amount consumers are willing to pay for the quota quantity.
Example of Quota
- An example of a quota is limits on the number of bushels of clams that can be caught in New Jersey.
Price Ceiling Impact
- An ineffective or nonbinding price ceiling occurs when a ceiling is set above the market equilibrium price. In this case, the ceiling does not impact market behavior as forces will still drive prices towards the lower market price.
Quota Rent and License Price
- The quota rent for a New York taxicab owner is equivalent to the market price of the license needed to operate the cab.
Effects of Price Controls
- Price controls can lead to inequitable outcomes in the market.
Price Ceiling Behavior
- When a price ceiling is imposed above the equilibrium price, it does not alter the behavior of either producers or consumers.
Definition of Price Ceiling
- A price ceiling is defined as the maximum price that sellers are allowed to charge for a particular good or service.
Price Elasticity (Midpoint Theorem)
- Price elasticity is calculated using the formula:
- [(\text{change in quantity}) / (\text{average quantity})]
- divided by
- [(\text{change in price}) / (\text{average price})]
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Description
This quiz explores key concepts like quota rent, price floors, and price ceilings in economics. Understand how these factors influence market dynamics and pricing strategies. Test your knowledge on how quotas affect supply and demand, including practical examples such as New Jersey's clam limits.
