Question

Concept Question 3.4 Consider the market for wheat where demand is given by a-150-2p and supply is given by a 60 1p Now suppose that, due to a market failure (an artificial shipping constraint), a maximum of 78.34 units of wheat can be supplied by firms in the market. The amount of the deadweight loss caused by the market failure is S(Enter your answer rounded to the nearest penny and as a positive number)

Answer 1

Setting the qd=qs

150-2p = 50+1p

150-50 = 1p+2p

100 = 3p

p = 100/3 = 33.33

q = 150-2*33.33 = 83.34

When Q = 78.34

78.34= 150-2p

p = 71.66/2 = 35.83

and the price that the producers would be willing to accept

78.34 = 50+p

p = 28.34

DWL = 0.5*(83.34-78.34)*(35.83-28.34) = 18.75 or 19