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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

Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor?

Table 3.9 illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:

(a) The price of milk, a key input for cheese production, rises, so that the supply decreases by 80pounds at every price.

(b) A new study says that eating cheese is good for your health, so that demand increases by 20%at every price.

Price per poundQdQs
\(3.00750540
\)3.20700600
\(3.40650650
\)3.60620700
\(3.80600720
\)4.00590730

If a price floor benefits producers, why does a price floor reduce social surplus?

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?

Suppose there is a soda tax to curb obesity. What

should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume that the soda tax is collected from the sellers.
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