Question

I don't understand deadweight loss. I thought it was the surplus that was lost from a shift. Why isn't the area I shaded red also deadweight loss? It was originally producer surplus and it's now above the demand curve, therefore it's no longer anyone's surplus.

Consider the market illustrated in the figure to the right Supply curve S, represents the privats cost of production and demand curve D1 reprasents the private benefit from consumption Suppose the consumption of this good creates a negative extenality In turn, the social benefit from consumption is represented by demand curve D2. Show how the externality affects market efficlency. S1 Use the triangle drawing tool to shade in the new economic surplus (New surplus) or the deadweight loss (Deadweight loss) created by the negative externality. Properly label this shaded area Carefaliy fliow the insfructions abovs, and only draw the rsquirsd objects. loss l D Di

Answer 1

Solution

here in below digram shows the negative externalities marginal cost of good is incresased and same time marginal benigits from buyers to buying good

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