Consider the market for first-aid training class.Market demand is given by P=600-Q.Market supply is given by P=Q.Individuals who have received first-aid training are very helpful in some urgent situations.More specifically,first-aid training will generate a positive spillover equal to Q/3.What is the deadweight loss if the externality is not dealt with? DWL=3000 DML:6000 DWL:4500 DWL=1500
Question
Consider the market for first-aid training class.Market demand is given by P=600-Q.Market supply is given by P=Q.Individuals who have received first-aid training are very helpful in some urgent situations.More specifically,first-aid training will generate a positive spillover equal to Q/3.What is the deadweight loss if the externality is not dealt with?
DWL=3000 DML:6000 DWL:4500 DWL=1500
Solution
To solve this problem, we first need to understand what deadweight loss (DWL) is. DWL is the loss in total surplus that occurs when the economy produces at an inefficient quantity.
Here, we have a positive externality equal to Q/3. This means that the social benefit of first-aid training is not being fully realized in the market.
The market equilibrium (where supply equals demand) is found by setting P=600-Q equal to P=Q. Solving this equation gives Q=300, P=300.
However, the socially optimal quantity (where social cost equals social benefit) is found by setting P=600-Q equal to P=Q+Q/3 (since the positive externality is Q/3). Solving this equation gives Q=360, P=240.
The deadweight loss is the area of the triangle formed by the quantity axis, the social cost curve (P=Q), and the social benefit curve (P=Q+Q/3) between the market quantity (Q=300) and the socially optimal quantity (Q=360).
The base of this triangle is 60 (360-300) and the height is 60 (300-240). Therefore, the deadweight loss is 0.5baseheight = 0.56060 = 1800.
So, the correct answer is not listed in the options you provided. The deadweight loss, if the externality is not dealt with, is 1800.
Similar Questions
Consider the market for first-aid training classes. Market demand is given by P = 600 – Q. Market supply is given by P = Q. Individuals who have received first-aid training are very helpful in some urgent situations which is captured in a positive spillover, or externality, equal to Q/4. This is thus an external benefit related to the consumption of first-aid training. What is the deadweight loss if the externality is not dealt with?
Consider a market where the demand is pD = 200 – 2Q while the supply is pS = 50 + Q (same as in the previous question). Calculate the deadweight-loss (DWL) if the government introduces a price cap at p = 80.
A monopolist has variable costs of VC = q2 and faces a demand curve of P = 24 – q, where P is price and q the quantity sold. If the monopolist engages in first-degree price discrimination, the resulting deadweight loss is?
Consider a competitive market in which the MPB = 138–4q and the MSC= 3q. In this market, however, there is a positive consumption externality of $74 per unit consumed. What is the DWL that results in the market equilibrium?[Round your answer to two decimal places when needed]
How do externalities contribute to deadweight loss? A. They create efficiency in resource allocation B. They lead to overproduction and underproduction C. They have no impact on resource allocation D. They cause underproduction of goods
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.