When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

D) There is no deadweight loss if the government uses a price floor policy to increase the price.

Question

Wyatt Mack

Business

2 March, 08:10

When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

D) There is no deadweight loss if the government uses a price floor policy to increase the price.

+4

Answers (1)

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Mathew Brown · Answer 1

Answer: Option (C) is correct.

Explanation:

When the market price of a commodity is set above the competitive market level then the dead-weight loss is a combination of producers and consumers losses that are associated with the units which are to be traded on a price before but these goods are no longer exchanged between the parties because of higher market price.