Figure 5-4

Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source. Figure 5-4 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 5-4.What is the deadweight loss from producing at the market equilibrium?
A)area C
B)area E
C)area D
D)area F

Question

Figure 5-4
  
Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source. Figure 5-4 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 5-4.What is the deadweight loss from producing at the market equilibrium?
A)area C 
B)area E 
C)area D 
D)area F

Quizplus · Accepted Answer

Area E represents the deadweight loss, which is the loss of total surplus (consumer surplus + producer surplus) due to inefficient allocation of resources caused by the market equilibrium being less than the social optimum. In this case, the waste material from the paper mills negatively impacts the fishing and recreation industries and public water supply, causing a reduction in total surplus. Therefore, it would be best to reduce the amount of wastewater discharged by the mills to decrease the deadweight loss and improve the well-being of the affected parties.

Figure 5-4 Suppose There Are Several Paper Mills Producing Paper for a Mills