A student wrote: "A production quota is inefficient because it results in overproduction
At the quota quantity, marginal social cost is equal to the market price and marginal social benefit is less than the market price, so marginal social cost exceeds marginal social benefit." If you were the instructor, how would you correct this statement?
The student errs in several important respects. There are errors of omission and commission. Here is a corrected statement: "A production quota is inefficient because (if set below the equilibrium quantity) it results in overproduction underproduction. At the quota quantity, marginal social cost benefit is equal to the market price and marginal social benefit cost is less than the market price, so marginal social cost benefit exceeds marginal social benefit cost."
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