The market shown here has a quota of 4 units.

What is the value of deadweight loss in this market as a result of the quota?

Choose 1 answer:
(A) $\$ 8$
(B) $\$ 24$
(C) $\$ 12$
(D) $\$ 28$

Question

The market shown here has a quota of 4 units.

What is the value of deadweight loss in this market as a result of the quota?

Choose 1 answer:
(A) $\$ 8$
(B) $\$ 24$
(C) $\$ 12$
(D) $\$ 28$

Accepted Answer

∻Solution∻ ‖ a ⋮ Identify the areas of deadweight loss: The deadweight loss (DWL) is the loss of economic efficiency when the equilibrium outcome is not achieved. In this case, the DWL is represented by the areas of the triangles U and V. ‖ ‖ b ⋮ Calculate the area of triangle U: The base of triangle U is the difference in quantity (4 units) and the height is the difference in price (9 - 5 = 4). The area of a triangle is given by $\frac{1}{2} imes ext{base} imes ext{height}$. Therefore, the area of triangle U is $\frac{1}{2} imes 4 imes 4 = 8$. ‖ ‖ c ⋮ Calculate the area of triangle V: The base of triangle V is the difference in quantity (8 - 4 = 4 units) and the height is the difference in price (5 - 3 = 2). The area of a triangle is given by $\frac{1}{2} imes ext{base} imes ext{height}$. Therefore, the area of triangle V is $\frac{1}{2} imes 4 imes 2 = 4$. ‖ ‖ d ⋮ Sum the areas of triangles U and V: The total deadweight loss is the sum of the areas of triangles U and V, which is $8 + 4 = 12$. ‖ ∻Answer∻ ⚹ $12 ⚹ ∻Key Concept∻ ⚹ Deadweight loss is the loss of economic efficiency when the equilibrium outcome is not achieved. ⚹ ∻Explanation∻ ⚹ The deadweight loss in this market due to the quota is calculated by summing the areas of the triangles U and V, which represent the loss in consumer and producer surplus. ⚹◊What is the formula for calculating deadweight loss in a market with a quota?⍭ Generate me a similar question◊

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