(Table: Market for Fried Ice Cream) Use Table: Market for Fried Ice Cream. Suppose that the government decides to reduce fried ice cream consumption as part of a war on obesity. After careful study, the government decides to impose a quota of 5,000 units on the production of fried ice cream this year. What price will producers charge if they obey the quota law?
A)$3.70
B)$3.80
C)$4.00
D)The answer cannot be determined with this information.

Question

(Table: Market for Fried Ice Cream) Use Table: Market for Fried Ice Cream. Suppose that the government decides to reduce fried ice cream consumption as part of a war on obesity. After careful study, the government decides to impose a quota of 5,000 units on the production of fried ice cream this year. What price will producers charge if they obey the quota law? 
A)$3.70 
B)$3.80 
C)$4.00 
D)The answer cannot be determined with this information.

Quizplus · Accepted Answer

The quota of 5,000 units will result in a decrease in the supply of fried ice cream, which will shift the supply curve to the left. This will cause an increase in the equilibrium price. Looking at the table, a decrease in supply from 7,500 to 5,000 units leads to an increase in price from $3.50 to $4.00. Therefore, the producers will charge $4.00 if they obey the quota law.