The diagram below shows the market for litres of milk.
FIGURE 5-8
-Refer to Figure 5-8.Suppose that a binding output quota is imposed on this market at quantity Q 1.The loss in economic surplus due to the quota is equal to
A)areas 5 and 6.
B)areas 5,6 and 7.
C)areas 2 and 5.
D)area 1.
E)areas 1,2 and 3.

Question

The diagram below shows the market for litres of milk.
  FIGURE 5-8
-Refer to Figure 5-8.Suppose that a binding output quota is imposed on this market at quantity Q 1.The loss in economic surplus due to the quota is equal to
A)areas 5 and 6. 
B)areas 5,6 and 7. 
C)areas 2 and 5. 
D)area 1. 
E)areas 1,2 and 3.

Quizplus · Accepted Answer

A binding output quota reduces the quantity traded below the equilibrium level, leading to a loss in economic surplus, which is represented by the deadweight loss. In this case, areas 5 and 6 represent the deadweight loss due to the quota.

The Diagram Below Shows the Market for Litres of Milk