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Figure 3.10 The Effects of a Quota
In the free market for tattoos in River City, producers supply 1,500 tattoos per year at a price of $50 per tattoo at the equilibrium (point x). Consumer surplus is A + B + C, and producer surplus is D + E + F. After the mayor of River City enacts a law requiring a permit to get a tattoo, the supply for tattoos becomes vertical at the quantity of 500 tattoos. At the new equilibrium (point z), producers supply 500 tattoos at the increased price of $100 per tattoo. Consumer surplus is reduced to A. Producer surplus is B + D + F, and the net gain to producers is BE. The deadweight loss is C + E.