The effect of quotas on a market. I work through the effect of a quota (i.e. a quantity control) on a market for Lobsters.

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This video offers a solution to the following question:

In Maine, you must have a license to harvest lobster commercially; there licenses are issued yearly. The state of Maine is concerned about the dwindling supplies of lobster 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 license 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.

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from Krugman Wells -- Microeconomics 2nd Ed. -- Chapter 5, Question 10