Questions: Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of 15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to 18. 20) Refer to Figure 4-3. What is the value of the deadweight loss at a price of 18? 100 180 660 1,040

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of 15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to 18. 20) Refer to Figure 4-3. What is the value of the deadweight loss at a price of 18? 100 180 660 1,040
Transcript text: Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $\$ 15$ and a quantity of 80 . Now suppose producers decide to cut output to 40 in order to raise the price to $\$ 18$. 20) Refer to Figure 4-3. What is the value of the deadweight loss at a price of $\$ 18$ ? \$100 \$180 \$660 \$1,040
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Solution

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Solution Steps

Step 1: Identify the Equilibrium Point

The initial equilibrium is at a price of $15 and a quantity of 80 pounds.

Step 2: Identify the New Price and Quantity

Producers decide to cut output to 40 pounds to raise the price to $18.

Step 3: Calculate the Deadweight Loss

Deadweight loss (DWL) is the loss of economic efficiency when the equilibrium outcome is not achievable. It can be calculated as the area of the triangle formed by the supply and demand curves at the new quantity and price.

  1. The base of the triangle is the difference in quantity: 80 - 40 = 40 pounds.
  2. The height of the triangle is the difference in price: $18 - $15 = $3.

DWL = 0.5 * base * height DWL = 0.5 * 40 * 3 DWL = 60

Final Answer

The value of the deadweight loss at a price of $18 is $60.

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