In the Atlantic provinces and Québec, you must have a licence to harvest lobster commercially; these licences are issued yearly. The federal Department of Fisheries and Oceans Canada is concerned about the dwindling supplies of lobsters found off its coast. This department has decided to place a yearly quota of 80 000 pounds of lobsters harvested in all Canadian waters. It has also decided to give licences this year only to those fishermen who had licences last year. The accompanying diagram shows the demand and supply curves for Canadian lobsters.

a. In the absence of government restrictions, what are the equilibrium price and quantity?

b. What is the demand price at which consumers wish to purchase 80 000 pounds of lobsters?

c. What is the supply price at which suppliers are willing to supply 80 000 pounds of lobsters?

d. What is the quota rent per pounds of lobster when 80 000 pounds are sold?

e. Explain a transaction that benefits both buyer and seller but is prevented by the quota restriction.

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Price of lobster (per pound) $22 20 18 16 14 12 10 20 40 60 80 100 120 140 Quantity of lobsters (thousands of pounds)