Suppose the market for kidneys is depicted in the graph shown. Initially, kidneys exchanges are regulated to allow donations only. This means kidneys can only be exchanged at a price of zero. What is the deadweight loss from this restriction?
A) $0
B) $825,000
C) $1,350,000
D) $1,500,000

Question

Suppose the market for kidneys is depicted in the graph shown.  Initially, kidneys exchanges are regulated to allow donations only. This means kidneys can only be exchanged at a price of zero. What is the deadweight loss from this restriction?
A) $0 
B) $825,000 
C) $1,350,000 
D) $1,500,000

Quizplus · Accepted Answer

The deadweight loss is the triangle formed by the intersection of the demand and supply curves with the vertical axis, up to the quantity exchanged at a price of zero. Using the graph, we can calculate the area of the triangle as follows:

Deadweight loss = ½ x base x height
Deadweight loss = ½ x 3,300 x 250
Deadweight loss = $825,000

Therefore, the best choice is B.

Suppose the Market for Kidneys Is Depicted in the Graph