Supply and Demand Quantity Restriction

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A quantity restriction is a form of government intervention in a market that limits the production and sale of goods to some fixed amount . When you introduce the quantity restriction, this model will show the amount of and the new market price. Consumer and producer surplus respond accordingly, and deadweight loss increases.

Contributed by: Nicholas Palmer (October 2014)
Open content licensed under CC BY-NC-SA



The area highlighted as deadweight loss illustrates the loss in consumer and producer surplus of this market due to the quantity restriction. This loss comes from transactions that can no longer occur with the quantity restriction. Notice from the example output that as the quota decreases and grows farther from the equilibrium quantity, both the price of the good and deadweight loss increase. This increase in deadweight loss illustrates the inefficiency that comes from this form of government intervention. It follows that as the quota becomes more severe, the market becomes more inefficient.

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