Asked by Elisa Otero on Jul 28, 2024

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When the government imposes a quota on sales of a good or service,it usually licenses the right to sell a given quantity of the good.The market price of the license is equal to the:

A) demand price of the good.
B) wedge that represents the difference between the demand price and the supply price.
C) supply price of the good.
D) equilibrium price of the good.

Market Price

The present cost for purchasing or selling an asset or service.

Demand Price

Demand price is the maximum price consumers are willing to pay for a product or service, influenced by factors like income, preferences, and availability of substitutes.

Supply Price

The price at which producers are willing to sell a product, which typically varies in direct relation to the quantity supplied.

  • Realize the task and quantifying procedure of quota rent in markets with quota implementations.
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TS
Tsahi SabagAug 01, 2024
Final Answer :
B
Explanation :
When a quota is imposed, it restricts the supply of the good or service. As a result, the demand price for the remaining supply increases, leading to a wedge between the demand price and the supply price. This wedge represents the market price of the license. Therefore, the correct answer is B.