Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It shows that the quantity produced exceeds the socially optimal level, reducing overall welfare.
B
It indicates that the price of copper is too low, leading to excessive production.
C
It suggests that consumers are willing to pay more than the market price, benefiting producers.
D
It represents a scenario where all resources are allocated efficiently.
Understanding the Answer
Let's break down why this is correct
Answer
Deadweight loss occurs when a market is not operating at its most efficient level, often due to negative externalities, which are costs that affect people not directly involved in a transaction. In the copper market, if a company pollutes while mining, the damage to the environment affects the health and wellbeing of nearby communities. This extra cost is not reflected in the price of copper, leading to overproduction because the company doesn't pay for the pollution it causes. As a result, the total welfare of society decreases because the harm caused by pollution outweighs the benefits of producing more copper. For example, if a factory produces copper but releases toxic waste, the health problems in the community create a deadweight loss, showing that the true cost of copper is higher than what consumers see in the market price.
Detailed Explanation
Deadweight loss happens when too much of a product is made. Other options are incorrect because This answer suggests that low prices cause too much copper to be made; This option thinks consumers want to pay more, which helps producers.
Key Concepts
Deadweight Loss
Negative Externalities
Socially Optimal Equilibrium
Topic
Graphing Deadweight Loss
Difficulty
easy level question
Cognitive Level
understand
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