Question

Consider the market demand and supply for eggs. Assume that the market for eggs is perfectly competitive. Suppose that egg producers organize themselves and establish a system of quotas. Each​ farmer's output is restricted by a specified amount of egg that he can produce.

Answer 1

The quota system is not efficient since the total supply is less than the equilibrium quantity. This will produce a deadweight loss which equals the lost supplier surplus plus the lost consumer surplus. The deadweight loss s the area between the demand and supply curve, and between the imposed quota and the equilibrium quantity.

Graph 1 shows the market equilibrium while graph 2 shows the deadweight loss.