A deadweight loss occurs in a
A) monopoly.
B) perfectly competitive market.
C) market in which the market clearing price of a good equals the marginal cost of producing it.
D) market in which the market clearing price of a good is below the marginal cost of producing it.

Question

Quizplus · Accepted Answer

Deadweight loss occurs in a monopoly market because the producer has market power and can set a higher price than the competitive market price, resulting in reduced production and consumer surplus, leading to an inefficient allocation of resources. In a perfectly competitive market, the market clearing price is efficient, and there is no deadweight loss. In a market where the market clearing price equals the marginal cost, the allocation of resources is efficient, and there is no deadweight loss. In a market where the market clearing price is below the marginal cost of production, firms will exit the industry, leading to a reduction in supply and higher prices resulting inefficient allocation of resources.

A Deadweight Loss Occurs in a