Consider the hypothetical supply and demand of Kidneys. Initially,Kidney exchanges are regulated to donations only.This means kidneys can only be exchanged at a price of zero.What is the deadweight loss from this restriction?
A) $0
B) $825,000
C) $1,350,000
D) $1200

Question

Consider the hypothetical supply and demand of Kidneys.  Initially,Kidney exchanges are regulated to donations only.This means kidneys can only be exchanged at a price of zero.What is the deadweight loss from this restriction?
A) $0 
B) $825,000 
C) $1,350,000 
D) $1200

Quizplus · Accepted Answer

The deadweight loss from this restriction can be calculated by finding the difference between the equilibrium quantity and the quantity transacted at the price ceiling (zero in this case). 
From the graph, we can see that the equilibrium quantity would be 900 kidneys at a price of $1.5 million. However, with the restriction, the quantity transacted is only 600 kidneys (the number of people willing to donate). 
Thus, the deadweight loss can be calculated as the difference between the two: 
Deadweight loss = 0.5 x ($1.5 million - $1.2 million) x (900 - 600) 
Deadweight loss = $825,000

Consider the Hypothetical Supply and Demand of Kidneys