MODULE 9: QUANTITY CONTROLS
The purpose of this module is to demonstrate that government can also regulate the quantity of a good
or service that is produced. These quantity controls are sometimes necessary, but also create economic
inefficiencies.
Student learning objectives:




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. 
Key Economic Concepts For This Module:




The graph below shows a hypothetical quota limit in the market for salmon. 
A quantity control, or quota, limits the number of transactions that can be made. Only producers
with an official license of some sort can sell the good or service. This policy creates a wedge
between the demand price (Pd) and supply price (Ps), and creates inefficiency. 
The difference between the demand and supply prices is known as the quota rent that represents
money that accrues to the holders of licenses. 
Common Student Difficulties:


After studying price controls, students may think that a quantity control is a completely new
topic. Stress to them that, rather than creating a horizontal gap between quantity demand and
supply, this policy simply creates a vertical gap between demand price and supply price. 
A simple numerical example, such as the one provided by the textbook, can help to explain
the difficult concept of quota rent. 
Module 9: Quantity Controls
65
In-Class Presentation of Module and Sample Lecture
Suggested time: This module can be covered in one hour-long class, with a brief discussion activity at the
end.
I.
Controlling Quantities
A.
The Anatomy of Quantity Controls
B.
The Costs of Quantity Controls
I. Controlling Quantities
In addition to controlling prices, the government can also decide that the equilibrium quantity is, for
some reason, too high.
So government determines a:
quantity control, or quota: an upper limit on the quantity of some good that can be bought or
sold. The total amount of the good that can be legally transacted is the quota limit.
Questions for the students:
  Why would we want to limit the quantity of a good that can be bought or sold? 
 Can you think of any production that is limited? 
 Who would benefit from this? 

A. The Anatomy of Quantity Controls 
A quota is set, a license is given (or auctioned) to producers.
A license gives its owner the right to supply the good.
Note: Excellent examples of quota limits are fishing limits. The instructor might provide the students
with an article about depleted ocean fisheries or fishing seasons that have been completely closed to
protect the stock of a species (i.e., salmon, swordfish, lobster, etc.).
Example Suppose we consider the market for ocean caught salmon.
Assume that equilibrium: Qe =50, Pe =$60
Suppose the salmon are becoming gravely endangered: Quota = 40
Licenses are allocated, each giving the salmon boat the right to harvest a certain amount of
salmon every year.
When the total quota limit is reached the season is over.
66
Section 2: Supply and Demand
The demand price Pd is the price at which consumers will demand that quantity.
The supply price Ps is the price at which producers will supply that quantity.
A quantity control, or quota, drives a wedge between the demand price and the supply price of a
good.
Suppose at the quota of 40:
Demand Price = $80
Supply Price = $50
If buyers are willing to pay $80, but sellers can produce at cost of $50, each owner of a license to
fish salmon earns the difference of $30. And this is the amount that any salmon boat would pay
to have a license.
Quota rent is the difference between the demand and supply price
The earnings that accrue to the license-holder from ownership of the right to sell the good.
It is equal to the market price of the license when the licenses are traded.
We can also think of the quota rent as the opportunity cost the holder of the license bears for not
renting out his license to another producer.
B. The Costs of Quantity Controls
1. Inefficiency: in the form of mutually beneficial transactions that don’t occur
Anytime the demand price at a given quantity is not equal to the supply price at that quantity, there
will be missed opportunities.
2. Incentives for illegal activities.
Suppliers know that additional units could be supplied and buyers could be found. This kind of
overproduction would violate the quota.
In the salmon example, this is illegal fishing, or poaching.
Module 9: Quantity Controls
67
In-Class Activities and Demonstrations
Divide the class into two parts. Explain that the United States has quantity limits on the amount of sugar
that can be imported into the United States. The purpose of the limit is to protect U.S. sugar growers. Ask
half the class to write down the benefits of the quantity control and the other to brainstorm the opportunity
costs of the control. Then ask students to find another student in the room to discuss the pros and cons.
Ask a few of the pairs to report.
68
Section 2: Supply and Demand