# Calculation of deadweight loss

Assume the following values for Figures 5.4 A .and 5.4 B. Q1 =20 BAGS. Q2 =15 BAGS. Q3 =27 BAGS. The market equilibrium price is $45 per bag. The price at A is $85 per bag. The price at C is $5 per bag. The price at F is $59 per bag. The price at G is $31 per bag. Apply the formula for the area of triangle (Area=1/2 x Base x Height) to answer the following questions.

A) What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level is being produced? How large is the dollar value of the consumer surplus at the output level?

B) What is the dollar value of the deadweight loss when output level Q2 is being produced? What is the total surplus when output level Q2 being produced?

C) What is the dollar value of the deadweight loss when level Q3 is being produced? What is the dollar value of the total surplus when out level Q3 is produced?

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#### Solution Preview

A) What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level is being produced? How large is the dollar value of the consumer surplus at the output level?

At allocative efficiency (market price) the total area of the triangle ABC is the total surplus. This gives us a value of

1/2 (80) (20) = 800

The consumer surplus is the area below the market price, which is half of the total surplus ...

#### Solution Summary

Deadweight loss due to surplus output levels.