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Figure: Market I
-(Figure: Market I) Look at the figure Market I. A price floor at $15 would result in deadweight loss of:
A) $9.
B) $10.
C) $20.
D) $40.50.

Question

Use the following to answer questions 
Figure: Market I 
-(Figure: Market I) Look at the figure Market I. A price floor at $15 would result in deadweight loss of:
A) $9. 
B) $10. 
C) $20. 
D) $40.50.

Quizplus · Accepted Answer

The deadweight loss can be calculated by finding the difference between the quantity demanded at the equilibrium price ($10) and the quantity supplied at the price floor ($15), multiplied by the difference between the equilibrium price and the price floor. 
The quantity demanded at the equilibrium price is 30 units, and the quantity supplied at the price floor is 10 units. The difference between these is 20. The difference between the equilibrium price and the price floor is $5. 
Therefore, the deadweight loss would be ($5 x 20) / 2, which equals $50 / 2 or $25. However, since deadweight loss represents a loss of total surplus (both consumer and producer surplus), we need to divide this by 2 to get the actual deadweight loss. Thus, the correct answer is $25 / 2 or $12.50, which is closest to answer choice C ($20).

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