What do cranberries, peanuts, sugar, chicken, eggs, milk, cheese, and tobacco have in common?

The answer is that production quotas have been used, either in the past or in the present, to regulate the markets for these items. Each item has an inelastic demand, so if its quantity supplied can be restricted to below the equilibrium quantity, its price rises by a larger percentage than the percentage decrease in the quantity supplied. As a result, producers end up with a greater total revenue and producer surplus.

Consumers lose. The loss incurred by each consumer is too small to complain about, but with millions of consumers, the total loss is large.

Some of what consumers lose is deadweight loss, but most of the consumers’ loss is the producers’ gain. And because there are many fewer producers than consumers, each producer ends up with a gain that is large enough to be worth paying for in political contributions to legislators who vote to sustain the quotas.

Watch Concept Video: Production Quotas Production Quota: An Example