Deadweight loss

Discussion in 'Economy' started by Truthmatters, Jul 8, 2011.

  1. Truthmatters
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  2. Truthmatters
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    Examples





    The deadweight loss is the area of the triangle formed by the tax income box, the original supply curve, and the demand curve. This is sometimes called Harberger's triangle.
    For example, consider a market for nails where the cost of each nail is 10 cents and the demand will decrease linearly from a high demand for free nails to zero demand for nails at $1.10. In a perfectly competitive market, producers would have to charge a price of 10 cents and every customer whose marginal benefit exceeds 10 cents would have a nail. However if there is one producer who has a monopoly on the product, then they will charge whatever price will yield the greatest profit. For this market, the producer would charge 60 cents and thus exclude every customer who had less than 60 cents of marginal benefit. The deadweight loss is then the economic benefit forgone by these customers due to the monopoly pricing.

    Conversely, deadweight loss can also come from consumers buying a product even if it costs more than it benefits them. To describe this, let's use the same nail market, but instead it will be perfectly competitive, with the government giving a 3 cent subsidy to every nail produced. This 3 cent subsidy will push the market price of each nail down to 7 cents. Some consumers then buy nails even though the benefit to them is less than the real cost of 10 cents. This unneeded expense then creates the deadweight loss: resources are not being used efficiently.

    If the price of a glass of beer is $3.00 and the price of a glass of wine is $3.00, a consumer might prefer to drink beer. If the government decides to levy a beer tax of $3.00 per glass, the consumer might prefer to drink wine. The excess burden of taxation is the loss of utility to the consumer for drinking wine instead of beer, since everything else remains unchanged. Most notably the tax revenue from this consumer is zero.






    Its seems the cons here are affraid of learning things because it will cause their historically failed ideas to be outed for what they really are.
     
  3. syrenn
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  4. Truthmatters
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    So what did you learn from that example of dead wieght loss?


    Or were you incapable of understanding the example?
     
  5. California Girl
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    I was expecting this to be news of the sudden demise of one of our congress critters. Have to say, I'm a tad disappointed.
     
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  6. Rat in the Hat
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    I opened it thinking it was her farewell thread.
     
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  7. Truthmatters
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    This goes right to the heart of the republican theories of government subsities, taxes and the magic market.


    You would think this type of science would be very important to them.

    The reason is the sceince yet again is not in the favor of their historically failed ideas.



    That is why they are not answering the question.

    They cant without having to discuss the failure of their ideas.
     
  8. syrenn
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    :lol:


    never thought of that!
     
  9. Si modo
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    Si modo Diamond Member

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    No way! TM cracks me up.


    She's schooling us. Shhhh....she's on a roll.

    Again.

    :woohoo:
     
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    Last edited: Jul 8, 2011
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    :lol:

    If she cant paraphrase and or come up with her own ideas and opinions about her "links" im sure not reading her links. Posting a link and then spouting her hack shit is just there for the entertainment value.

    I agree she cant leave ...she is way to funny.
     

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