Question

Microeconomics

Posted 5 months ago

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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) $\$ 28$
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Answer from Sia

Posted 5 months ago

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 $\frac{1}{2} \times \text{base} \times \text{height}$. Therefore, the area of triangle U is $\frac{1}{2} \times 4 \times 4 = 8$

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 $\frac{1}{2} \times \text{base} \times \text{height}$. Therefore, the area of triangle V is $\frac{1}{2} \times 4 \times 2 = 4$

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.

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