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Author Question: What is an individual transferable quota (ITQ)? What will be an ideal ... (Read 53 times)

plus1

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on: Jun 29, 2018
What is an individual transferable quota (ITQ)?
 
  What will be an ideal response?

Question 2

Assume a tomato farmer owns one truck and employs one driver. One Saturday a month he brings one truck load of tomatoes to the Farmer's Market.
 
  Over time he discovers that the demand for his tomatoes has increased dramatically as a result of increased marketing and advertising for the market. Explain both the short run and the long run impact on the equilibrium price and quantity of the farmer's tomatoes. Explain in terms of elasticity of supply.


javimendoza7

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Reply #1 on: Jun 29, 2018
Answer to Question 1

An ITQ is a production limit that is assigned to an individual who is free to transfer the quota to someone else. An ITQ is used in a market where there are common resources that might otherwise be overused.

Answer to Question 2

The short run impact will likely be that the equilibrium price will rise but the equilibrium quantity of tomatoes is likely to stay the same. The reason is that in the short run the farmer's supply of tomatoes is relatively inelastic since he only has one truck and one delivery driver. However, with the passage of time his supply curve is likely to become more elastic if he is able to obtain another truck and deliver driver. In the long run the equilibrium quantity of tomatoes supplied will likely increase by more.


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