Question

Consider a market​ where: Consumer surplus is 250 Producer surplus is 125. If both consumer surplus and producer surplus are​ maximized, what is the amount of the deadweight​ loss? 0 0. ​(round your answer to the nearest​ penny) ​Next, suppose that consumer surplus falls to 180​, but producer surplus rises to 155. What is the change in​ welfare? -35225 negative 25 ​(round your answer to the nearest penny and add the minus sign if necessary​).

Answer 1

Answer:

A. Deadweight loss = 125 units.

B. Deadweight loss = 25 units.

Explanation:

In a free market and completely efficient economy, the consumer surplus equals the producer surplus. Both benefits of free trade. When consumers o producers have a minor surplus, necessarily implies a loss on eficiency, usually caused by government regulations like taxes or price ceilings.

The amount of welfare lost is measure by the difference between consumer and producer surplus.

In the first case:

|Consumer surplus - producer surplus| = 25 units

|250- 125| = 125 units

And in the second case:

|180- 155| = 25 units