Consider the following perfectly competitive market. The yearly demand and supply is given as follows:

Exercise 3: On Quotas (40 points) Consider the following perfectly competitive market. The yearly demand and supply is given as follows: Price Quantity demanded Quantity supplied 0 12 0 2 10 4 4 8 8 6 6 12 8 4 16 Table 2: Demand and Supply 1) Find the equilibrium price and quantity. Show the demand and supply on a diagram. (3 points) 2) Suppose that the government does not like what is happening in the market and decide to impose a quota on total production of Q = 4. In addition, as soon as the production quota is reached, production must stop. a) Find the demand price and supply price at the quota. Explain what is likely to happen in this market1 e.g. what the selling price will be and how the suppliers\" revenue may be impacted by such a policy. ( 5 points) b) Is there any quota rent in such a case? If not, what is then the \"meaning\" of the wedge between the supply price and demand price? {5 points) c) Does it matter whether the good produced is storable or perishable? {5 points) 3) Suppose now that the government imposes a total quota on production of Q = 4 but gives the right to produce to a single rm. Redo part 2) under this new scenario. (10 points) 4) Suppose now that the government imposes a total quota on production of Q = 4 but the right to sell is issued through a tradable license system. There are 4 licenses being issued and each gives the right to sell one unit. Each license is valid for 2 years. The government auctions the licenses and award the licenses to those who are willing to pay the most for them. Redo part 2) under this new scenario and identify the revenue generated by the govern- ment i.e., also identify what the price of a single license will bcL? Did eiciency increase compared to 2) and 3)? {12 points)