Ed has 100 tons of manure.The lowest price at which he is willing to sell it is $10 per ton.Fred wants to buy 100 tons of manure.The most he is willing to pay is $8 per ton.The federal government offers to subsidize manure sales at a rate of $1 per ton.If Ed and Fred are the only people who deal in manure, then the deadweight loss caused by the subsidy is
A)$100.
B)$50.
C)$0.
D)$200.
E)none of the above.

Question

Quizplus · Accepted Answer

With a subsidy of $1 per ton, Ed's effective selling price becomes $9 per ton ($10 - $1 subsidy), which is still above Fred's maximum willingness to pay of $8 per ton. Therefore, no transaction occurs, and since the subsidy does not lead to any additional transactions, there is no deadweight loss.

Ed Has 100 Tons of Manure