Asksia AI LOGO

Sia

Question
Macroeconomics
Posted 10 months ago

A price floor of $44\$ 44 has been imposed on this market:

What is the value of the deadweight loss that occurs as a result of sellers who are no longer able to participate in this market?

Choose 1 answer:
(A) $48\$ 48
(B) $13.50\$ 13.50
(c) $27\$ 27
(D) $120\$ 120
(E) $22.50\$ 22.50

Related content
Lesson Overview: Taxation and Deadweight Loss
Article
Report a problem
Sign in to unlock the answer
Answer from Sia
Posted 10 months ago
Solution
a
Definition of Deadweight Loss: Deadweight loss refers to the loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable. In the context of a price floor, it represents the loss of transactions that would have occurred in a free market but do not occur due to the price floor being above the equilibrium price
b
Calculation of Deadweight Loss: To calculate the deadweight loss, we need to find the area of the triangle formed by the supply and demand curves and the price floor line. The base of the triangle is the difference between the quantity demanded and the quantity supplied at the price floor. The height is the difference between the price floor and the equilibrium price. The formula for the area of a triangle is 12×base×height\frac{1}{2} \times \text{base} \times \text{height}
c
Applying the Formula: The equilibrium quantity is 8 and the equilibrium price is 38.Thepricefloorissetat38. The price floor is set at 44, which intersects the supply curve at a quantity less than 8 (since the supply curve is upward sloping from left to right). The exact quantity supplied at the price floor is not given, but we can infer that it is less than the equilibrium quantity of 8. The base of the triangle is the difference in quantity (8 - quantity supplied at the price floor), and the height is the difference in price (44−44 - 38 = $6). Without the exact quantity supplied at the price floor, we cannot calculate the deadweight loss precisely. However, we can match the area of the triangle to the closest answer choice
Answer
The value of the deadweight loss cannot be determined precisely with the given information.
Key Concept
Deadweight loss due to a price floor is the economic efficiency loss when the price is set above the equilibrium.
Explanation
Without the exact quantity supplied at the price floor, we cannot calculate the exact deadweight loss, but we know it is the area of the triangle formed by the supply and demand curves and the price floor line.

Not the question you are looking for? Ask here!

Enter question by text

Enter question by image

Unlock Smarter Learning with AskSia Super!

Join Super, our all-in-one AI solution that can greatly improve your learning efficiency.

30% higher accuracy than GPT-4o
Entire learning journey support
The most student-friendly features
Study Other Question