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

The imposition of a milk quota reduces the quantity of milk produced to Q1, which results in a decrease in consumer surplus (area 1) and an increase in producer surplus (areas 3 and 4). However, there is also a deadweight loss (area 2) due to the reduction in quantity. Therefore, economic surplus is represented by areas 1, 2, and 3 after the imposition of the milk quota.

The Diagram Below Shows the Market for Litres of Milk