Review
3. Assume that the market for eggs is perfectly competitive. The
diagram below shows the demand for and the supply of eggs.a. At the free-market equilibrium, p* and Q*, show what
areas represent consumer and producer surplus.
b. Now suppose the egg producers organize themselves and
establish a system of quotas. Each farmer’s output is
restricted by an amount to keep aggregate output at
What happens to industry price?
c. In the quota system in part (b), what areas now represent
consumer and producer surplus? Is the quota system
allocatively efficient? Explain.