The figure above shows the market supply and market demand for pizza
a) What is the efficient quantity of pizzas?
b) If 70,000 pizzas are produced, what area represents the deadweight loss?
c) Why does the deadweight loss in part (b) occur?
d) If 20,000 pizzas are produced, what area represents the deadweight loss?
e) Why does the deadweight loss in part (d) occur?
a) 40,000 pizzas is the efficient quantity.
b) If 70,000 pizzas are produced, the deadweight loss is area C.
c) The deadweight loss occurs because we are producing some pizzas, specifically pizzas 40,001 through 70,000, for which the marginal social cost is greater than the marginal social benefit.
d) If 20,000 pizzas are produced, the deadweight loss is area B.
e) The deadweight loss occurs because we are not producing some pizzas, namely pizzas 20,001 through 40,000, for which the marginal social benefit is greater than the marginal social cost.
You might also like to view...
You have a $500 saving bond. If the nominal interest rate is 10 percent, then the inflation rate must be
A) 10 percent if in real terms you earned $200. B) 10 percent if in real terms you earned $100. C) zero, otherwise you would sell the bond. D) 4 percent if in real terms you earned $30. E) 4 percent if in real terms you earned $70.
Recall the Application. The idea regarding the relationship between tax rates and tax revenues proposed by Yu Juo is very similar to the idea proposed by economist
A) Arthur Laffer. B) Adam Smith. C) Ben Bernanke. D) David Ricardo.