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2. KRUGMAN’S
Economics
for AP®
S E C O N D E D I T I O N

3. Section 2
Module 9

4. What You Will Learn in this Module
Describe how quantity controls create problems and can make a market inefficient
Explain who benefits and who loses from quantity controls
Section 2 | Module 9

5. Controlling Quantities
A quantity control, or quota, is an upper limit on the quantity of some good that can be bought or sold.
A license gives its owner the right to supply a good.
The demand price of a given quantity is the price at which consumers will demand that quantity.
The supply price of a given quantity is the price at which producers will supply that quantity.
Section 2 | Module 8

6. The Anatomy of Quantity Controls
A quantity control, or quota, drives a wedge between the demand price and the supply price of a good.
The price paid by buyers ends up being higher than that received by sellers.
The difference between the demand and supply price at the quota limit is the quota rent.
Section 2 | Module 8

7. The Market for Taxi Rides in the Absence of Government Controls
Fare
(per ride)
Quantity of rides
Fare
(millions per year)
(per ride) S
Quantity demanded
Quantity supplied
$7.00
6.50
$7.00 6 14
6.00 $
6.50 7 13
5.50 E $
6.00 8 12
5.00 $
5.50 9 11
4.50 $
5.00 10 10
4.00 $
4.50 11 9 $
4.00 12 8
3.50 $
3.50 13 7
3.00 D $
3.00 14 6 6 7 8 9 10 11 12 13 14
Quantity of rides (millions per year)
Section 2 | Module 8

8. Effect of a Quota on the Market for Taxi Rides
Fare
(per ride)
Quantity of rides
(millions per year)
Fare S
$7.00
Deadweight loss
(per ride)
Quantity demanded
Quantity supplied
6.50 A
6.00
$7.00 6 14
The “wedge”
5.50
6.50 $ 7 13 E
5.00
6.00 $ 8 12
4.50
5.50 $ 9 11
4.00
5.00 $ 10 10 B
3.50
4.50 $ 11 9
3.00
4.00 $ 12 8 D
3.50 $ 13 7
Quota
3.00 $ 14 6 6 7 8 9 10 11 12 13 14
Quantity of rides (millions per year)
Section 2 | Module 8

9. The Costs of Quantity Controls
Deadweight loss because some mutually beneficial transactions don’t occur.
A deadweight loss occurs when a market is not perfectly competitive—the price is greater and the quantity is lower than in a perfectly competitive market structure.
Section 2 | Module 8

10. F Y I The Clams of New Jersey
In the 1980s, excessive fishing threatened to wipe out New Jersey’s clam beds.
To save the resource, the U.S. government introduced a clam quota.
This set an overall limit on the number of bushels of clams to be caught and allocated licenses to owners of fishing boats based on their historical catches.
Section 2 | Module 8

11. Summary
Quantity controls, or quotas, limit the quantity of a good that can be bought or sold.
The quantity allowed for sale is the quota limit.
Economists say that a quota drives a wedge between the demand price and the supply price.
Quantity controls lead to deadweight loss.
Section 2 | Module 8