Q1:
In Maine, you must have a license to harvest lobster commercially; these licenses are issued yearly. The state of Maine is concerned about the dwindling supplies of lobsters found off its coast. The state fishery department has decided to place a yearly quota of 80,000 pounds of lobsters harvested in all Maine waters. It has also decided to give licenses this year only to those fishermen who had licenses last year. The accompanying diagram shows the demand and supply curves for Maine lobsters.
a. In the absence of government restrictions, what are the equilibrium price and quantity?
b. What is the demand price at which consumers wish to purchase 80,000 pounds of lobsters?
c. What is the supply price at which suppliers are willing to supply 80,000 pounds of lobsters?
d. What is the quota rent per pound of lobster when 80,000 pounds are sold? Illustrate the quota rent and the deadweight loss on the diagram.
e. Explain a transaction that benefits both buyer and seller but is prevented by the quota restriction.
Q2: The Venezuelan government has imposed a price ceiling on the retail price of roasted coffee beans. The accompanying diagram shows the market for coffee beans. In the absence of price controls, the equilibrium is at point E, with an equilibrium price of PE and an equilibrium quantity bought and sold of QE.
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