Use the following to answer questions:
-(Table: Market for Fried Twinkies) Look at the table Market for Fried Twinkies. Suppose the government decides to reduce fried Twinkie consumption as part of a war on obesity. After careful study, the government decides to impose a quota of 5,000 on production of fried Twinkies this year. What price will producers charge if they obey the quota law?
A) $1.20
B) $1.30
C) $1.50
D) The answer cannot be determined with this information.

Question

Use the following to answer questions: 
-(Table: Market for Fried Twinkies) Look at the table Market for Fried Twinkies. Suppose the government decides to reduce fried Twinkie consumption as part of a war on obesity. After careful study, the government decides to impose a quota of 5,000 on production of fried Twinkies this year. What price will producers charge if they obey the quota law?
A) $1.20 
B) $1.30 
C) $1.50 
D) The answer cannot be determined with this information.

Quizplus · Accepted Answer

The price producers will charge is determined by the supply and demand equilibrium at the quota level. If the quota is set at 5,000 units, the price will be the one at which the quantity supplied equals 5,000.

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