When the government imposes a quota on sales of a good or service,it usually licenses the right to sell a given quantity of the good.The market price of the license is equal to the:
A)demand price of the good.
B)wedge that represents the difference between the demand price and the supply price.
C)supply price of the good.
D)equilibrium price of the good.

Question

Quizplus · Accepted Answer

When a quota is imposed, it restricts the supply of the good or service. As a result, the demand price for the remaining supply increases, leading to a wedge between the demand price and the supply price. This wedge represents the market price of the license. Therefore, the correct answer is B.

When the Government Imposes a Quota on Sales of a Good