Question

When an effective production quota is applied in the market for​ rice, the quantity produced​ ______ and the price​ ______. A. ​decreases; falls B. ​increases; falls C. ​increases; rises D. ​decreases; rises

Answer 1

Option (D) is correct.

Step-by-step explanation:

Effective production quota refers to the quota which limits the production of the firms. In this type of restriction, the producers are restricted to produce some amount of output. For binding, the production quota is set to be lower than the current level of output produced. Therefore, the quantity produced reduces or decreases and the price of the output increases or rises. Also, at this level of output, the marginal benefit is greater than the marginal cost.