The diagram below shows the market for litres of milk. FIGURE 5- 8
-Refer to Figure 5- 8. After the imposition of a milk quota at quantity Q1, economic surplus is represented by

Question

The diagram below shows the market for litres of milk.  FIGURE 5- 8
-Refer to Figure 5- 8. After the imposition of a milk quota at quantity Q1, economic surplus is represented by

Quizplus · Accepted Answer

After the imposition of the milk quota at Q1, economic surplus is represented by areas 1, 2 and 3. These areas represent the net welfare benefit to consumers (area 1), producers (area 2), and government (area 3) respectively. Areas 4, 5, 6 and 7 represent deadweight loss due to the inefficiencies of the quota system.

The Diagram Below Shows the Market for Litres of Milk