The figure shows the unregulated market for a pesticide, where S is the supply curve and D is the demand curve. The demand curve is the same as the MSB curve. When factories produce the pesticide, they also create waste, which they dump into a lake on the outskirts of the town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing the pesticide.
-In the figure above, if no one owns the lake, what is the deadweight loss in the market?
A) $2,400 per month
B) $1,800 per month
C) $3,600 per month
D) zero

Question

The figure shows the unregulated market for a pesticide, where S is the supply curve and D is the demand curve. The demand curve is the same as the MSB curve. When factories produce the pesticide, they also create waste, which they dump into a lake on the outskirts of the town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing the pesticide.
-In the figure above, if no one owns the lake, what is the deadweight loss in the market?
A) $2,400 per month 
B) $1,800 per month 
C) $3,600 per month 
D) zero

Quizplus · Accepted Answer

If no one owns the lake, it implies that there is no regulation or control over its use, leading to overuse or depletion of resources. This results in a deadweight loss, which is the loss of economic efficiency when the equilibrium outcome is not achieved. In this scenario, the deadweight loss is $2,400 per month.

The Figure Shows the Unregulated Market for a Pesticide, Where