Five Minute Exercises

Equilibrium with a Supply Quota (+)

Given:

Market willingness to pay is WTP = 1000 - 5*Q
There are two suppliers
Supplier 1 has WTA1 = 5*Q1
Supplier 2 has WTA2 = 100
Supplier 2 is subject to a quota and Q2 may not be more than 40

Exercise 1

Determine the market equilibrium price.

Answer

Exercise 2

Determine the effect on consumer surplus and the producer surplus for domestic firms (relative to having no quota).

Answer

Exercise 3

Determine the effect on producer surplus for foreign firms and the deadweight loss (relative to no quota).

Answer

If you get stuck...

Graphs of the market and surpluses
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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 08/17/2016