The deadweight loss associated with output less than the competitive level can be determined by
A) subtracting the competitive level producer surplus from the producer surplus associated with less output.
B) subtracting the consumer surplus from the producer surplus associated with less output.
C) summing the consumer and producer surplus associated with less output.
D) summing the change in the total consumer and producer surplus from moving from the competitive level of output to less output.

Question

Quizplus · Accepted Answer

The deadweight loss represents the loss of surplus from the competitive level of output to the actual level of output. To calculate this, we need to compare the total surplus (consumer and producer) at the competitive level of output with the total surplus at the actual level of output. Therefore, the correct way to determine the deadweight loss associated with output less than the competitive level is to sum the change in total consumer and producer surplus from moving from the competitive level to less output. This is option D. Options A, B, and C are incorrect because they do not take into account the change in both consumer and producer surplus.

The Deadweight Loss Associated with Output Less Than the Competitive