Suppose a binding output quota is imposed in a previously competitive market with free-market equilibrium price and quantity.The result is
A)higher price and higher quantity exchanged.
B)higher price and lower quantity exchanged.
C)lower price and lower quantity exchanged.
D)lower price and higher quantity exchanged.
E)no change in price or quantity exchanged.

Question

Quizplus · Accepted Answer

When a binding output quota is imposed in a competitive market, it reduces the amount of goods that suppliers can produce and offer for sale. This results in a shift in the supply curve to the left. As a result, the equilibrium price will increase while the equilibrium quantity will decrease. Therefore, the correct answer is higher price and lower quantity exchanged, which is option B.

Suppose a Binding Output Quota Is Imposed in a Previously