Question

Summary: Deadweight loss is generally triangular shaped and will be located between the two equilibrium quantities. Remember that the equation for a triangle is 1/2(base*height).

a) True
b) False

Answer 1

Deadweight loss is generally triangular in shape and represents the inefficiency and reduction in total surplus in the economy when it produces at an inefficient quantity. It is like money thrown away that benefits no one.

Step-by-step explanation:

Deadweight loss is generally triangular in shape and is located between the two equilibrium quantities. The equation for a triangle is 1/2(base*height).

The deadweight loss represents the inefficiency and reduction in total surplus that occurs when the economy produces at an inefficient quantity. It is like money thrown away that benefits no one. When deadweight loss exists, both consumer and producer surplus can be higher because some suppliers and demanders are blocked from transactions they would both be willing to make.

In Figure 3.24 (a), the deadweight loss is the area U + W, which forms a triangular shape.