1. Quantity Controls: Quotas
Students will analyze the implications of a quota system in the real world to demonstrate understanding of a quota

2. NYC Taxi Medallion
1930s = 11,787
2014 = 13,257
Issued for a fee of $10.00 per license
Today, these medallions are sold for upwards of $10, per license
Quota system: gov’t regulation of quantity

3. 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)

4. 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!

5. 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 transaction

6. Quotas Effects—Deadweight Loss (cont.)
Deadweight Loss: missed opportunities from not operating at equilibrium due to intervention
Rule: when demand price exceeds supply price there will be deadweight loss
Missed gains experienced by buyers and sellers
D.L. = 1/2B×H

7. 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. = ineffective
Price floor>E.P. = ineffective