What area(s) represent deadweight loss that occurs because some buyers can no longer buy this good?

Choose 1 answer:
(A) $H$
(B) $K$
(C) $G$
(D) $I$
(E) $L$

Question

What area(s) represent deadweight loss that occurs because some buyers can no longer buy this good?

Choose 1 answer:
(A) $H$
(B) $K$
(C) $G$
(D) $I$
(E) $L$

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Deadweight Loss: Deadweight loss refers to the loss of economic efficiency that occurs when the equilibrium outcome is not achieved. It represents the total surplus lost to society due to market distortions such as price controls. ‖ ‖ b ⋮ Identifying Deadweight Loss: On a supply and demand graph, deadweight loss is typically represented by the area between the supply and demand curves that is not realized due to the price control. ‖ ‖ c ⋮ Analyzing the Graph: In the given graph, the price control is set at $P4$, which is above the equilibrium price. This creates a surplus, as the quantity supplied ($Q2$) exceeds the quantity demanded ($Q1$). The deadweight loss is the area between the supply and demand curves from $Q1$ to $Q2$. ‖ ‖ d ⋮ Calculating Deadweight Loss: The deadweight loss is represented by the area of the triangle formed by points $I$, $H$, and $K$. This area is not realized in the market due to the price control. ‖ ∻Answer∻ ⚹ (B) $K$ ⚹ ∻Key Concept∻ ⚹ Deadweight loss occurs when market equilibrium is not achieved due to price controls, resulting in a loss of total surplus. ⚹ ∻Explanation∻ ⚹ In the given graph, the deadweight loss is represented by the area of the triangle formed by points $I$, $H$, and $K$, which is the area between the supply and demand curves from $Q1$ to $Q2$. ⚹◊What factors could lead to an increase in deadweight loss in this supply and demand scenario?⍭ Generate me a similar question◊

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