Scenario: Vacant houses, foreclosed or abandoned, are typically boarded up with plywood that many people consider unsightly and likely to invite vandalism. An alternative is clear plastic (polycarbonate) panels. The figure below shows the demand and the supply of polycarbonate panels used for boarding up houses in a hypothetical town. Suppose that there are 140 houses that are vacant and the town council makes it illegal to use plywood to board them up, leaving only polycarbonate panels as an alternative. To answer some of the questions below, it will be useful to find the equations of the three lines in the figure.

-Refer to the scenario above.What is the deadweight loss associated with the council's action relative to the socially efficient outcome?

Question

Scenario: Vacant houses, foreclosed or abandoned, are typically boarded up with plywood that many people consider unsightly and likely to invite vandalism. An alternative is clear plastic (polycarbonate) panels. The figure below shows the demand and the supply of polycarbonate panels used for boarding up houses in a hypothetical town. Suppose that there are 140 houses that are vacant and the town council makes it illegal to use plywood to board them up, leaving only polycarbonate panels as an alternative. To answer some of the questions below, it will be useful to find the equations of the three lines in the figure.
 
-Refer to the scenario above.What is the deadweight loss associated with the council's action relative to the socially efficient outcome?

Quizplus · Accepted Answer

The deadweight loss is the loss of consumer and producer surplus that results from the council's action. In this case, the council's action reduces the quantity of the good produced and sold from 100 units to 80 units. This reduction in output results in a loss of consumer surplus of $400 and a loss of producer surplus of $500, for a total deadweight loss of $900.

Scenario: Vacant Houses, Foreclosed or Abandoned, Are Typically Boarded Up