Quotas Students will analyze the implications of a quota system in the real world to demonstrate understanding of a quota NYC Taxi Medallion 1930s 11787 2014 13257 Issued for a fee of 1000 per license ID: 378514
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Slide1
Quantity Controls:Quotas
Students will analyze the implications of a quota system in the real world to demonstrate understanding of a quotaSlide2
NYC Taxi Medallion
1930s = 11,787
2014 = 13,257
Issued for a fee of $10.00 per licenseToday, these medallions are sold for upwards of $10,000.00 per licenseQuota system: gov’t regulation of quantity Slide3
Market for Taxi Rides in NYC
Demand Price
: the price at which consumers want to buy a given quantity ($5.00)
Supply Price: the price at which producers will supply a given quantity ($5.00)Slide4
NYC Taxi Ride Market w/ Quote
Consumers willing to pay $6.00 per ride
Suppliers willing to accept $4.00 per ride
HUGE impact on the market for taxi rides!Slide5
Quotas Effects—Deadweight Loss
Graph shows us 2 transactions:
1) Taxi Rides ($4.00 and $6.00)
2) Medallions (the “wedge”)The “wedge” is the quota rent—range between demand price and supply price that gives us the value/rent of the license (medallion) per transactionSlide6
Quotas Effects—Deadweight Loss
(cont.)
Deadweight Loss
: missed opportunities from not operating at equilibrium due to interventionRule: when demand price exceeds supply price there will be deadweight loss
Missed gains experienced by buyers and sellers
D.L. = 1/2B×HSlide7
Quick Note
Just like price floors and ceilings quotas can be ineffective when the quota (quantity control) they impose is greater than equilibrium
Quota>E.Q.
= ineffectivePrice floor>E.P. = ineffective