Refer to the above diagram.If actual production and consumption occur at Q₁: A) efficiency is achieved. B) consumer surplus is maximized. C) an efficiency loss (or deadweight loss)of b + d occurs. D) an efficiency loss (or deadweight loss)of e + d occurs.

Question

Quizplus · Accepted Answer

At the point where actual production and consumption occur (Q₁), the quantity demanded (QD) exceeds the quantity supplied (QS), resulting in a shortage. The deadweight loss is the area of the triangle formed by points B, U1, and U1B1. This loss occurs because some mutually beneficial transactions (represented by the shaded area between QD and QS at the market-clearing price) do not take place due to the shortage. Therefore, the economy is not producing efficiently, and there is a loss in welfare, represented by the area b+d.

Refer to the Above Diagram