📚 Learning Guide
Graphing Deadweight Loss
medium

In a small town, a copper factory is emitting pollutants that affect local air quality, leading to health issues among residents. If the town's government decides to impose a tax on the factory to reduce production to a socially efficient level, which of the following outcomes best represents the concept of deadweight loss in this scenario?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

The factory produces less copper, leading to higher prices and a reduction in consumer surplus, but overall societal welfare increases.

B

The factory continues producing at the same level, leading to increased profits without any impact on societal welfare.

C

The factory's production increases to meet higher demand, causing more pollution and worsening health issues in the community.

D

The factory reduces production, leading to a deadweight loss triangle that reflects the difference between consumer surplus and social welfare.

Understanding the Answer

Let's break down why this is correct

Answer

Deadweight loss occurs when the production of a good is not at the socially optimal level, leading to inefficiencies in the market. In this case, the copper factory is producing more than what is socially beneficial because the pollution it creates harms the health of residents. When the government imposes a tax on the factory, it aims to decrease production to a level that balances the factory's output with the health costs to the community. This tax can lead to fewer units of copper being produced, which may reduce the factory's profits but ultimately improves air quality and public health. The deadweight loss in this scenario represents the lost economic benefits that occur when production is reduced below the quantity that would have been produced without the pollution, illustrating the trade-off between economic activity and social welfare.

Detailed Explanation

When the factory produces less copper, prices go up. Other options are incorrect because This option suggests the factory keeps making the same amount; Here, the factory makes more copper, which is the opposite of what the tax aims to do.

Key Concepts

Deadweight Loss
Negative Externalities
Social Efficiency
Topic

Graphing Deadweight Loss

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.