What is deadweight loss? Whose loss is it? Explain
What will be an ideal response?
Deadweight loss is the portion of consumer surplus that no one in society is able to obtain in a situation of a monopoly. It is a loss by consumers because the failure of the monopolist to produce as many units as would have been produce under perfect competition eliminates consumer surplus that otherwise would have been a benefit to consumers.
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In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of $600 per month. Then the government imposes a rent ceiling of $500 per month. The loss of producer surplus
A) is smaller than the gain in consumer surplus. B) is larger than the gain in consumer surplus. C) is the same size as the gain in consumer surplus. D) could be smaller than, larger than, or the same size as the gain in consumer surplus.
Because Treasury bills pay a higher return than money and have no risk
A) the transactions demand for money may be zero. B) the precautionary demand for money may be zero. C) the speculative demand for money may be zero. D) all three of the above motives for holding money will be zero.