Question

Microeconomics

Posted 2 months ago

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What is deadweight loss in this market?
Choose 1 answer:
(A) $\$ 7,000$
(B) $\$ 10,000$
(C) $\$ 22,000$
(D) $\$ 6,000$
( $\$ 3,000$
```

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Answer from Sia

Posted 2 months ago

Solution

a

Definition of Deadweight Loss: Deadweight loss (DWL) is the loss of economic efficiency that occurs when the equilibrium outcome is not achieved. It is represented by the area between the supply and demand curves (or marginal cost and marginal benefit curves) that is not realized due to market distortions such as taxes, subsidies, or price controls

b

Identifying Equilibrium: The equilibrium in the market is where the supply line (S_L) intersects with the marginal revenue product line (MRP). From the graph, this intersection occurs at the point where Q_L = 600 and the price is $25

c

Identifying the Distorted Quantity: The distorted quantity is where the vertical dashed line intersects the MRP curve, which is at Q_L = 400

d

Calculating the Deadweight Loss: The deadweight loss is the area of the triangle formed between the equilibrium quantity (600), the distorted quantity (400), and the prices at these quantities ($25 and$55). The formula for the area of a triangle is $\frac{1}{2} \times \text{base} \times \text{height}$. Here, the base is the difference in quantities (600 - 400 = 200) and the height is the difference in prices ($55 -$25 = $30). Therefore, the deadweight loss is$\frac{1}{2} \times 200 \times 30 = 3000$

Answer

$3,000

Key Concept

Deadweight loss is the loss of economic efficiency when the equilibrium outcome is not achieved.

Explanation

The deadweight loss in this market is calculated as the area of the triangle formed by the equilibrium quantity, the distorted quantity, and the prices at these quantities.

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