-In the figure above, S is the supply curve and D is the demand curve in the unregulated, competitive market for gasoline in Motorland. The external cost of gasoline is constant at $1.50 per gallon. When the market for gasoline in Motorland is in equilibrium, the deadweight loss is
A) $37,500 per month.
B) $150,000 per month.
C) $75,000 per month.
D) zero.

Question

-In the figure above, S is the supply curve and D is the demand curve in the unregulated, competitive market for gasoline in Motorland. The external cost of gasoline is constant at $1.50 per gallon. When the market for gasoline in Motorland is in equilibrium, the deadweight loss is
A) $37,500 per month. 
B) $150,000 per month. 
C) $75,000 per month. 
D) zero.

Quizplus · Accepted Answer

The deadweight loss in this scenario is calculated by considering the external cost of $1.50 per gallon. In a competitive market equilibrium without regulation, the market does not account for this external cost, leading to overconsumption. The deadweight loss is the area of the triangle formed by the external cost and the difference in quantity between the socially optimal level and the market equilibrium level. Given the options, $75,000 per month is the correct calculation of this deadweight loss.

-In the Figure Above, S Is the Supply Curve and D