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Efficiently at the competitive equilibrium the sum of

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Unformatted text preview: he competitive equilibrium, the sum of consumer surplus and producer surplus is maximized. maximized. Price (dollars per pizza) Underproduction Consumer surplus falls Consumer 25 S …but loss exceeds gain: but this is the deadweight deadweight loss 20 15 10 Producer Producer surplus grows grows If reduce output from 10 to 5 from pizzas pizzas 5 0 5 10 10 15 20 D Quantity (thousands of pizzas per day) Overproduction Overproduction Price (dollars per pizza) 25 Consumer Consumer surplus increases increases 20 Overall there is a deadweight loss And producers And suffer losses suffer 15 If increase If output from 10 to 15 pizzas to 10 producer producer surplus falls surplus 5 0 5 S D 10 10 15 20 Quantity (thousands of pizzas per day) Sources of Inefficiency Sources • Price ceilings and floors • Taxes, subsidies, and quotas • Monopoly • Public goods • External costs and benefits • High transaction costs When the market When is prevented from working efficiently there is...
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