Figure: Foreign Trade Market (Figure: Foreign Trade Market) Refer to the figure. What isthe dollar value of the deadweight loss created by the loss offoreign trade?

Question

Figure: Foreign Trade Market  (Figure: Foreign Trade Market) Refer to the figure. What isthe dollar value of the deadweight loss created by the loss offoreign trade?

Quizplus · Accepted Answer

The deadweight loss is the triangle between the domestic supply and demand curves and the world price. The base of the triangle is 10 units of the good, and the height is $400 per unit. Therefore, the deadweight loss is (1/2) x 10 x $400 = $2,000. However, since the deadweight loss is split evenly between producers and consumers, the loss to each group is only $1,000. Thus, the total deadweight loss is $2,000 + $2,000 = $4,000. Therefore, option B is correct.