This question is related to the use of output quotas in the milk market in the previous question. Suppose the government used a quota system instead of direct price supports to assist milk producers. In particular, it issued quotas to existing milk producers for 1.67 million litres of milk per month.
a. If milk production is exactly equal to the amount of quotas issued, what price do consumers pay for milk?
b. Compared with the direct price controls in the previous question, whose income is higher under the quota system? Whose is lower?