Post by: shivanipalawai@gmail.com on Nov 23, 2022
Assume that P1=$12,250, P2=$17,000, P3=$24,500, Q1=3,000, Q2=7,250 and Q3=15,500. Notice that the gap between the marginal benefit curve and the marginal social benefit curve is constant. At the market equilibrium, what is the deadweight loss?
Please round your final answer to two decimal places.
◦ $76,562,500.00
◦ $50,531,250.00
◦ $29,687,500.00
◦ $19,593,750.00
Post by: Yermi196 on Nov 23, 2022
Market equilibrium occurs where supply (MC) equals demand (MB).
In this example, at a price of P2 = $17,000 and a quantity of Q1 = 3,000.
The economically efficient equilibrium, however, occurs where supply (MC) equals the marginal social benefit (MSB) of education.
In this example, at a price of P2 = $17,000 and a quantity of Q3 = 15,500.
The deadweight loss is equal to the area of the shaded region in the graph:
Because the gap between the marginal benefit curve and the marginal social benefit curve is constant, the gap is equal to P3 - P1 = 24,500 - 12,250 = $12,250
Deadweight loss = 0.5 * base * height = 0.5*(Q3 - Q1)*(P3 -P1) = 0.5*(15,500-3,000)*12,250
Deadweight loss = $76,562,500.00