A production quota program
A) Imposes limits on the price that individual firms can charge
B) Is a way to raise prices without causing the overproduction that occurs under a price support program
C) Places limitations on demand
D) Is a way to lower prices without causing the overproduction that occurs under a price support program

Question

Quizplus · Accepted Answer

A production quota program sets a limit on the amount of a good that a producer is allowed to produce. By limiting production, the supply is reduced which can lead to a price increase without causing overproduction. This is the opposite of a price support program which can lead to overproduction and an excess supply. Option A is incorrect because production quotas do not limit the price a firm can charge, they only limit the quantity produced. Option C is incorrect because production quotas do not limit demand, only supply. Option D is incorrect because production quotas are used to reduce supply and raise prices, not lower prices.

A Production Quota Program