This graph shows the market for fried bologna sandwiches. A binding price floor has been imposed on this market.

What area(s) depict the deadweight loss that results from producers who are no longer able to participate in this market?

Choose 1 answer:
(A) $X$
(B) $W$
(C) $Y$
(D) $V$
(E) $U$

Related content
Minimum wage and price floors
Lesson Overview: Taxation and Deadweight Loss
B Article

Question

This graph shows the market for fried bologna sandwiches. A binding price floor has been imposed on this market.

What area(s) depict the deadweight loss that results from producers who are no longer able to participate in this market?

Choose 1 answer:
(A) $X$
(B) $W$
(C) $Y$
(D) $V$
(E) $U$

Related content
Minimum wage and price floors
Lesson Overview: Taxation and Deadweight Loss
B Article

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Deadweight Loss: Deadweight loss in the context of a price floor occurs when the price is set above the market equilibrium, leading to a reduction in the quantity of goods traded. This results in a loss of economic efficiency, as potential gains from trade are not realized. ‖ ‖ b ⋮ Identification of Deadweight Loss on the Graph: The deadweight loss is represented by the area of the triangle that forms between the supply and demand curves at the market equilibrium price, which is above the quantity that the market would have traded at the price floor. This area is typically to the right of the quantity supplied but left of the quantity demanded at the price floor. ‖ ∻Answer∻ ⚹ (C) $Y$ ⚹ ∻Key Concept∻ ⚹ Deadweight Loss from a Price Floor ⚹ ∻Explanation∻ ⚹ The deadweight loss due to a price floor is the economic inefficiency caused by a reduction in the quantity of goods traded, represented by the area where trades that would have benefited both buyers and sellers do not occur because the price is artificially kept above equilibrium. ⚹◊What formula can be used to calculate the deadweight loss in a market with a binding price floor?⍭ Generate me a similar question◊

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