Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The area of the triangle formed between the supply and demand curves above the price ceiling
B
The total consumer surplus lost due to the price ceiling
C
The total producer surplus gained due to the price ceiling
D
The area of the rectangle formed below the equilibrium price
Understanding the Answer
Let's break down why this is correct
Answer
Deadweight loss occurs when the total economic efficiency of a market is reduced, often because of government interventions like price ceilings. When a price ceiling is set below the equilibrium price, it prevents the market from reaching its natural balance, leading to a lower quantity of goods being produced and sold. This means that some consumers who are willing to pay more for the product cannot buy it, and some producers who would be willing to sell at a higher price are unable to do so. For example, if a price ceiling on rent is set below what landlords would charge, fewer apartments will be available, causing some people to miss out on housing. The deadweight loss is represented by the lost transactions that would have occurred at the equilibrium, which are now not happening due to the ceiling.
Detailed Explanation
The deadweight loss is the area of the triangle above the price ceiling. Other options are incorrect because This answer confuses lost consumer surplus with deadweight loss; This option suggests that producers gain from a price ceiling, which is not true.
Key Concepts
supply and demand curves
Topic
Calculating Deadweight Loss
Difficulty
easy level question
Cognitive Level
understand
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