Figure SEQ Figure 2
-Consider Figure 2.If a price intervention of $25 is imposed this would result in a deadweight loss because of
A)Underproduction
B)Overproduction
C)Increasing consumer surplus
D)Decreasing producer surplus

Question

Figure SEQ Figure 2 
-Consider Figure 2.If a price intervention of $25 is imposed this would result in a deadweight loss because of
A)Underproduction 
B)Overproduction 
C)Increasing consumer surplus 
D)Decreasing producer surplus

Quizplus · Accepted Answer

Imposing a price intervention of $25 would result in an overproduction of the good. As a result, suppliers will produce more than what consumers demand at this price, causing a surplus of the good. This surplus will result in a deadweight loss which occurs when the marginal benefit of consuming an additional unit of the good is less than the marginal cost of producing it. Therefore, the deadweight loss is caused by overproduction.