The two deadweight triangles are the Consumption distortion and Production distortion losses. It is easy to understand why the Consumption distortion constitutes a loss for society
After all it raises the prices of goods to consumers, and even causes some consumers to drop out of the market altogether. It seems paradoxical that the Production distortion is considered an equivalent burden on society. After all, in this case, profits increase, and additional production (with its associated employment) comes on line. This would seem to be an offset rather than an addition to the burden or loss borne by society. Explain why the Production distortion is indeed a loss to society, and what is wrong with the logic that leads to the apparent paradox.
The Production Distortion represents an inefficient shift of society's resources to produce a good, which it could not sell profitably at world prices. Since (with full employment assumed) these resources were formerly used to produce export goods, which could compete profitably, the net result is a loss in real income to the country.
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Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?
What will be an ideal response?
When OPEC raises the price of petroleum, American expenditures on oil imports increase, suggesting that
a. the United States' elasticity of demand for imported oil is greater than one. b. the United States' elasticity of demand for imported oil is less than one. c. imported oil and domestically produced oil are complementary goods. d. the short-run elasticity of demand for oil is greater than the long-run elasticity.
An increase in aggregate demand is most likely to be caused by an increase in:
a. Interest rates for home mortgages b. government regulations on business firms c. consumer confidence d. taxes on households
If air pollution control is a public good, it follows that:
A. additional persons can benefit from a given amount of air pollution control without reducing the benefits enjoyed by others. B. the efficient output of air pollution control is zero. C. the more air pollution control enjoyed by any one person, the less is available to others. D. the efficient output of air pollution control can be attained by selling it by the unit in a market.