In the figure, the change in insurance coverage causes a social welfare loss equal to:

Question

Quizplus · Accepted Answer

The social welfare loss is the reduction in the sum of producer and consumer surplus caused by the change in insurance coverage. In this case, the reduction in consumer surplus is $100 (from 300 to 200), and the reduction in producer surplus is $60 (from 180 to 120), for a total reduction of $160. However, there is a transfer of $120 from the insurance company to the insured, which partially offsets the reduction in consumer surplus. Therefore, the net social welfare loss is $160 - $120 = $40.

In the Figure, the Change in Insurance Coverage Causes a Social