Question

Deadweight loss rev: 05_10_2018 Multiple Choice

Answer 1

Answer:

is measured as the combined loss of consumer surplus and producer surplus.

Explanation:

A deadweight loss happens when the equilibrium quantity is not reached, resulting in a loss of economic surplus (addition of supplier and consumer surplus).

For example, a price ceiling increases the quantity demanded but decreases the quantity supplied, resulting in a shortage. The deadweight loss is measured by the area beneath the demand curve and above the supply curve.

The deadweight loss can also result from a price floor, where the quantity demanded decrease and the quantity supplied increases.