Module 9
Supply and Demand:
Quantity Controls
KRUGMAN'S
MACROECONOMICS for AP*
Margaret Ray and David Anderson
What you will learn
in this Module:
• The meaning of quantity controls, another
way government intervenes in markets
• How quantity controls create problems
and can make a market inefficient
• Who benefits and who loses from quantity
controls, and why they are used despite
their well-known problems
Controlling Quantities
• Quantity Control Quota
• Licenses
Deadweight Loss: losses associated with quantities of
output that are greater than or less than the efficient level,
as can result from market intervention such as taxes, or
from externalities such as pollution.
The Anatomy of Quantity
Controls
Deadweight
Loss: losses
associated with
quantities of
output that are
greater than or
less than the
efficient level, as
can result from
market
intervention
such as taxes, or
from
externalities
such as
pollution.
The Anatomy of Quantity
Controls
• Demand Price
• Supply Price
• Wedge - Quota Rent
The Cost of Quantity Controls
• Deadweight Loss
Figure 9.1 The Market for Taxi Rides in the Absence of
Government Controls
Ray and Anderson: Krugman’s Economics for AP, First Edition
Copyright © 2011 by Worth Publishers
Figure 9.2 Effect of a Quota on the Market for Taxi Rides
Ray and Anderson: Krugman’s Economics for AP, First Edition
Copyright © 2011 by Worth Publishers