Which of the following statements is (are) TRUE? I. Quantity controls drive a wedge between the demand price and the supply price of the good.
II) The difference between the demand price and the supply price at the quota limit is consumer surplus.
III) Quantity controls have no undesirable side effects.
A) I
B) II
C) II and III
D) I, II, and III

Question

Quizplus · Accepted Answer

Quantity controls, such as quotas, create a difference between the demand price (what consumers are willing to pay) and the supply price (what producers are willing to accept), effectively driving a wedge between them. Statement II is incorrect because the difference is not consumer surplus; it is a quota rent or deadweight loss. Statement III is incorrect because quantity controls can lead to inefficiencies and other undesirable side effects.

Which of the Following Statements Is (Are) TRUE? I