Supply in the market for cigarettes is perfectly competitive,given by the function Q_S = P.True demand in the market is Q_D = 100 - P.Due to behavioral biases (of whatever form,whether people have limited willpower or have limited cognitive abilities to process the actual health effects of smoking),people overestimate the value of cigarettes,leading to the perceived demand curve .Compute the deadweight loss from the overconsumption generated by this behavioral bias.(Hint: use the perceived demand curve to compute market equilibrium but make your welfare calculations using the true demand curve.)

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First, we need to find the market equilibrium using the perceived demand curve: Q_S = Q_D P = 50 Now, we need to find the corresponding quantity demanded and quantity supplied using the true demand curve: Quantity demanded: 100 - P = 50 Quantity supplied: P = 50 Therefore, the true equilibrium price and quantity are both 50. To find the deadweight loss, we need to compare the total surplus at the true equilibrium to the total surplus at the perceived equilibrium: Perceived equilibrium: Consumer surplus = (1/2)(100-50)(100-50) = 2,500 Producer surplus = (1/2)(50)(50) = 1,250 Total surplus = 3,750 True equilibrium: Consumer surplus = (1/2)(100-50)(100-50) = 2,500 Producer surplus = (1/2)(50)(50) = 1,250 Total surplus = 3,750 Because the total surplus is the same at both the true and perceived equilibrium, the deadweight loss is 0. Therefore, the answer is: Answer: D The deadweight loss from overconsumption is 0.

Supply in the Market for Cigarettes Is Perfectly Competitive,given by the Function