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Quotas and mandates reduce society's happiness

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Discuss the following from an economic perspective and give numerical examples:

Quotas and mandates reduce society's happiness by causing too few resources to flow to an industry where the government has intervened.

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Solution Preview

In a free market, resources are allocated in a way maximizes social welfare. This is done through the pricing of goods, which rewards the producers of the products most in demand. When the government forces an industry to reduce production through a quota or mandate, resources are diverted to some less useful purpose. From the standpoint of economic efficiency, this is not desirable. However, the free market fails in some cases, and this is why governments intervene. Reasons for failure include: (1) goods that are characterized by nonrival consumption and/or problems excluding nonpayers from consumption, (2) limited competition and market control by either buyers or sellers, (3) external costs or benefits that are not reflected in demand price or supply price, or (4) limited or imperfect information about the product or market transaction by either buyer sellers. Market ...

Solution Summary

The solution discusses quotas and mandates from an economic perspective and give examples.