Use the following to answer questions:
Figure: Water Market
-(Figure: Water Market) Refer to the figure: If a price floor in the diagram gets set at $8 a gallon, what is the deadweight loss?
A) $30,000
B) $60,000
C) $240,000
D) $480,000

Question

Use the following to answer questions:
Figure: Water Market 
-(Figure: Water Market) Refer to the figure: If a price floor in the diagram gets set at $8 a gallon, what is the deadweight loss?
A) $30,000 
B) $60,000 
C) $240,000 
D) $480,000

Quizplus · Accepted Answer

The deadweight loss is the area of the triangle formed by the price floor and the equilibrium price. The base of the triangle is the difference between the equilibrium quantity and the quantity supplied at the price floor, which is 30 gallons. The height of the triangle is the difference between the price floor and the equilibrium price, which is $2. Therefore, the area of the triangle is 1/2 * 30 * 2 = $30.

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