The deadweight loss associated with a policy change is measured as
A) the maximum value of consumer surplus
B) the sum of consumer surplus and producer surplus associated with the new policy
C) the excess of producer surplus over consumer surplus
D) the sum of Δ consumer surplus plus Δ producer surplus associated with the new policy

Question

Quizplus · Accepted Answer

Deadweight loss is the loss of economic efficiency due to a policy change, resulting in a loss of consumer surplus and producer surplus. Therefore, the deadweight loss associated with a policy change can be measured as the sum of the change in consumer surplus and change in producer surplus, which is represented by choice D. The maximum value of consumer surplus (choice A) and the excess of producer surplus over consumer surplus (choice C) do not account for the loss of economic efficiency that results from a policy change, while choice B is simply the total surplus associated with the new policy and does not specifically account for the deadweight loss.

The Deadweight Loss Associated with a Policy Change Is Measured