By Christopher Renus Key concepts Deadweight loss is lost consumer and producer surplus that would occur in an efficient market Deadweight loss is caused by a tax a price ceiling or the pricing from a monopoly ID: 595661
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Slide1
Deadweight loss
By Christopher RenusSlide2
Key concepts
Deadweight loss is lost consumer and producer surplus that would occur in an efficient market
Deadweight loss is caused by a tax, a price ceiling, or the pricing from a monopoly.
More elastic supply, the more deadweight lossSlide3
Monoplies
Deadweight loss due to that a monopoly restricts supply below the socially efficient quantitySlide4
Taxation
Lost value to consumers and producers due to reduction in sales of the goodSlide5
Eco ArtSlide6
Multiple Choice
A monopoly will result in deadweight loss because
A. it creates more total surplus than a perfect competitor.
B. It creates less total surplus than a perfect competitor.
C. It produces a quantity that is allocatively efficient.
D. It produces a quantity that is not productively efficient.
Slide7
D, Monopolies produce at a lower quantitySlide8
5. A deadweight loss is a consequence of a tax on a good because the tax
a. induces the government to increase its expenditures.
b. induces buyers to consume less, and sellers to produce less, of the good.
c. causes a disequilibrium in the market.
d. imposes a loss on buyers that is greater than the loss to sellerSlide9
B, The supply curve shifts to the left.Slide10
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax)
16. The dead weight efficiency loss created by the tax is equal to
(A)
P,GHPo
(B)
P,GKPo
(C) GHK
(D)
GKl
(E) zeroSlide11
D
, GKI is the area
of deadweight loss Slide12
Free Response
1. A. Assume that the market for doodads has an equilibrium price of $10. At this price suppliers produce 1,000 units. Draw a supply and demand graph illustrating the market doodads.
B. Indicate equilibrium price and quantity on your graph.
2. A. The government imposes a maximum price of $12 on the price of doodads. Explain the effect on the equilibrium price that this price ceiling will have?
3. A. Now assume that the government imposes a minimum price of $12 on the price of doodads. Illustrate this price control on your graph.
B. Determine whether a shortage or surplus is created. Indicate the quantity of this shortage or surplus.
C. Illustrate the welfare loss that occurs at a price of $12Slide13
Real life examples
http://larrymwalkerjr.blogspot.com/2011/10/obamacares-deadweight-loss.html
http://www.thenewstribune.com/2011/12/21/1953437/all-i-want-for-christmas-is-an.html