AP Microeconomics Pol 2 C a Explain Equilibrium Allocations in Imperfect Markets Relative to Efficient Allocations Using Graphs Where Appropriate and Why Questions

Compare market and efficient quantities, identify the lost-surplus region between social benefit and cost, and calculate or evaluate deadweight loss under policy.

Exam points

compare the market quantity with the socially efficient quantity to diagnose underproduction or overproduction
identify or shade deadweight loss between marginal social benefit and marginal social cost
calculate deadweight loss as the triangular value of mutually beneficial trades lost or harmful units produced
compare a tax, output restriction or no-intervention outcome by its quantity and deadweight loss

[Maximum number: 1]

NCHart is a corporation that has developed and patented a new drug to treat heart disease. There are no substitutes for this drug, giving NCHart a monopoly.

Instead of maximizing profit, suppose NCHart considers providing the new drug to as many patients as possible as long as it can generate enough revenue to cover its total costs.

At $\mathrm{Q}_{\mathrm{Z}}$ from part (c)(i), is there a deadweight loss? Explain.

State there is a deadweight loss at $\mathrm{Q}_{\mathrm{z}}$ and explain that P (or D)<MC, as shown.

1 point

Note: Deadweight loss will exist at $\mathrm{Q}_{\mathrm{z}}$ if the demand is drawn such that the quantity at

which D=ATC is less than the quantity at which D=MC, because P (or D)>MC.

Note: Deadweight loss will NOT exist at $\mathrm{Q}_{\mathrm{z}}$ if the demand is drawn such that the quantity

at which D=ATC is equal to the quantity at which D=MC, because P (or D )=MC.

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AP Microeconomics Pol 2 C a Explain Equilibrium Allocations in Imperfect Markets Relative to Efficient Allocations Using Graphs Where Appropriate and Why Questions question 1