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Chapter 3: Q 35 (page 78)

What is deadweight loss?

Short Answer

Expert verified

A deadweight loss is a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium.

Step by step solution

01

Effect

The imposition of a price floor or a price ceiling will prevent a market from adjusting to its equilibrium price and quantity, and thus will create an inefficient outcome.

Deadweight loss disrupts the natural market equilibrium with consumers loosing out on products that they demand and suppliers loosing out potential revenue from the supply.

02

Step Diagram

The imposition of a price floor or a price ceiling will prevent a market from adjusting to its equilibrium price and quantity, and thus will create an inefficient outcome.

The deadweight loss weight area ids grey colored area

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Most popular questions from this chapter

In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.

a. There have recently been some important cost-saving inventions in the technology for making paint.

b. Paint is lasting longer, so that property owners need not repaint as often.

c. Because of severe hailstorms, many people need to repaint now.

d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen

televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and

quantity of flat screen TVs?

Table 3.10 shows the supply and demand for movie tickets in a city. Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.

(a) Three new nightclubs open. They offer decent bands and have no cover charge, but make their money by selling food and drink. As a result, demand for movie tickets falls by six units at every price.

(b) The city eliminates a tax that it placed on all local entertainment businesses. The result is that the quantity supplied of movies at any given price increases by 10%.

Price per poundQdQs
\(5.002616
\)6.002418
\(7.002220
\)8.002121
$9.002022

What is the effect of a price ceiling on the quantity demanded of the product? What is the effect of a price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?

Will supply curves have the same shape in all

markets? If not, how will they differ?
See all solutions

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