Suppose Ron is willing to pay $200 to see a professional basketball game and Felix is willing to pay $150. Assume the normal price of a ticket is $125. The local government decides to impose a $35/ticket surcharge to raise revenue, causing the ticket price to rise to $160.The resulting deadweight loss is
A)$75.
B)$25.
C)$35.
D)$150.

Question

Quizplus · Accepted Answer

The deadweight loss is calculated as the loss in consumer surplus and producer surplus that occurs when a market is not operating efficiently. In this case, Felix is no longer willing to buy a ticket at the new price of $160, as it exceeds his maximum willingness to pay of $150. Ron is still willing to buy a ticket, but the increase in price reduces the consumer surplus he gains from the transaction. The deadweight loss is the value of the transaction that no longer occurs, which is the difference between Felix's willingness to pay ($150) and the new ticket price ($160), resulting in a deadweight loss of $10. However, since the question does not provide an option that matches this calculation directly and may involve a misunderstanding in the calculation process, it's important to note that the correct approach to calculating deadweight loss in this scenario involves considering the area of the triangle formed by the price change above the willingness to pay of the excluded buyer, which might not be directly reflected in the provided choices.

Suppose Ron Is Willing to Pay $200 to See a Professional