To calculate the deadweight loss in the market equilibrium, we need to understand the concept of deadweight loss in economics.
Deadweight loss represents the loss of total welfare (consumer surplus + producer surplus) in a market due to market inefficiency or the misallocation of resources. It occurs when the quantity of goods produced and consumed deviates from the socially optimal quantity.
In this case, let's assume that the optimal output level of the factory, from a societal perspective, is Q_optimal units. However, the market equilibrium output is Q_equilibrium units, which is 6 units more than the optimal amount.
The increase in medical expenditure on neighbors due to pollution from the factory is $5 per unit of the factory's production.
The deadweight loss can be calculated as follows:
1. Calculate the external cost due to the pollution:
External Cost = $5 per unit of production
2. Calculate the excess production beyond the optimal level:
Excess Production = Q_equilibrium - Q_optimal
3. Calculate the deadweight loss:
Deadweight Loss = External Cost * Excess Production
The formula for deadweight loss in this case is:
Deadweight Loss = $5 * (Q_equilibrium - Q_optimal)
Without specific values for Q_equilibrium and Q_optimal, we cannot calculate the exact deadweight loss. However, if you have the values for Q_equilibrium and Q_optimal, you can substitute them into the formula to find the deadweight loss.