Country Talmar produces 100,000 cars during a particular year. The market price of cars in Talmar is $5,000. In a recent meeting of the Economic Council, an economist, Carl Anderson claimed the nation's production of cars was inefficiently high because the industry seemed to have positive inventory every year. Another economist, Tara Henderson, felt that the production was inefficiently low because there is a huge segment of the population that does not own cars.

Which of the following statements are Tara and Carl likely to agree with?

a. There is economic inefficiency in the market for tires.

b. Every individual in the market will be better off if the production level of cars changes.

c. The price of cars is likely to decline in the near future.

d. Marginal benefit exceeds marginal cost at the existing level of production.

e. There is a deadweight loss at the given production level.

Question

Business

Brylee

26 May, 14:18

Country Talmar produces 100,000 cars during a particular year. The market price of cars in Talmar is $5,000. In a recent meeting of the Economic Council, an economist, Carl Anderson claimed the nation's production of cars was inefficiently high because the industry seemed to have positive inventory every year. Another economist, Tara Henderson, felt that the production was inefficiently low because there is a huge segment of the population that does not own cars.

Which of the following statements are Tara and Carl likely to agree with?

a. There is economic inefficiency in the market for tires.

b. Every individual in the market will be better off if the production level of cars changes.

c. The price of cars is likely to decline in the near future.

d. Marginal benefit exceeds marginal cost at the existing level of production.

e. There is a deadweight loss at the given production level.

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Answers (1)

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Anna Daniels · Answer 1

e. There is a deadweight loss at the given production level.

Explanation:

A deadweight loss, also known as excess burden or allocative inefficiency, is a loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved.