Figure 4-3

Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P₁ and a quantity of Q₁. Now suppose producers decide to cut output to Q₂ in order to raise the price to P₂.
-Refer to Figure 4-3. What area represents the deadweight loss at P₂?

Question

Figure 4-3
  
Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P₁ and a quantity of Q₁. Now suppose producers decide to cut output to Q₂ in order to raise the price to P₂.
-Refer to Figure 4-3. What area represents the deadweight loss at P₂?

Quizplus · Accepted Answer

The deadweight loss at P₂ is represented by the area of triangle C + E. This is the loss of consumer and producer surplus that results from the reduction in quantity traded due to the increase in price. Option C includes only the area of triangle C + E, which accurately represents the deadweight loss. Option A includes additional areas that do not represent deadweight loss, and Option B includes only the area of producer surplus lost, not consumer surplus. Option D includes both the deadweight loss and the loss in producer surplus, but it also includes the gain in consumer surplus, which is not part of the deadweight loss.

Figure 4-3 Figure 4-3 Shows the Market for Granola. the Market Is