Which of the following statements is not generally true of a production quota?
A)The market will not clear due to the excess supply of that good.
B)Consumer surplus increases when compared to the market before the quota.
C)Producer surplus may increase or decrease.
D)Some of the consumer surplus will be transferred to producers.

Question

Quizplus · Accepted Answer

Production quotas generally lead to a decrease in the supply of the good in question, which can lead to an increase in the market price. This can decrease consumer surplus, not increase it, as stated in option B. The other options are generally true of production quotas. A production quota typically results in a decrease in the supply of a good, which can cause the market price to rise. This increase in price can lead to a decrease in consumer surplus, as consumers may have to pay more for the same amount of the good. Therefore, statement B is not generally true.

Which of the Following Statements Is Not Generally True of a Production