The figure above shows supply and demand in the market for labor. The government introduces a minimum wage of $7 per hour.
-In the figure above,the deadweight loss is
A) $4,000 an hour.
B) $2,000 an hour.
C) $1,000 an hour.
D) $5,000 an hour.
E) zero.

Question

The figure above shows supply and demand in the market for labor. The government introduces a minimum wage of $7 per hour.
-In the figure above,the deadweight loss is
A) $4,000 an hour. 
B) $2,000 an hour. 
C) $1,000 an hour. 
D) $5,000 an hour. 
E) zero.

Quizplus · Accepted Answer

The deadweight loss is the area of the triangle below the equilibrium price and above the equilibrium quantity. In this case, the equilibrium price is $5,000 and the equilibrium quantity is 100 units. The deadweight loss is therefore:```(1/2) * (5,000 - 4,000) * (100 - 80) = $4,000```

The Figure Above Shows Supply and Demand in the Market