Use the following for questions 55-59.
Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit

-(Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit) In Panel (b), if the activity level is at E, then there will be a deadweight loss shown by the area:
A) EGC.
B) FGC.
C) ABC.
D) AFE.

Question

Use the following for questions 55-59.
Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit
 
-(Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit) In Panel (b), if the activity level is at E, then there will be a deadweight loss shown by the area:
A) EGC. 
B) FGC. 
C) ABC. 
D) AFE.

Quizplus · Accepted Answer

If the activity level is at point E, the marginal benefit is equal to the marginal cost. However, the socially optimal level of activity is at point F, where the marginal benefit is greater than the marginal cost. Therefore, if the activity level is at E, there will be a deadweight loss shown by the area FGC, which represents the benefits that society could have gained but did not due to the suboptimal level of activity. Areas EGC and ABC do not represent deadweight loss, as they are simply the consumer and producer surplus, respectively. Area AFE represents the net benefit at the socially optimal level of activity.

Use the Following for Questions 55-59