ECON 201 Lecture Notes - Lecture 6: Price Elasticity Of Demand, Deadweight Loss, Economic Surplus
14 Apr 2016
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Deadweight loss the surplus that we lose with price controls. Price loors = higher price, smaller quanity demanded. Price ceiling = lower price, smaller quanity supplied. Binding = moving price away from equilibrium and creates deadweight loss: eliminates mutually beneicial trades. Quota upper limit on the quanity of some good that can be bought or sold. Holding a permit becomes an asset that has value ( quota rent : rent geing value more than what is eicient because you have property rights. Producers get licenses (quota license: ex: if usa gives out licenses, those companies can produce the limited quanity. Price comes from quanity demanded with a quanity restricion. Quota rent excess value to producer. Just like price loors, quota = higher price and lower quanity. Those who are allowed to sell in the market will beneit from higher prices, but those who can"t sell will lose. Quota rent gains from a quota.
