The Two Deadweight Triangles Are the Consumption Distortion and Production

question 69

Essay

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.

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Definitions:

Integrity

The quality of being honest and having strong moral principles, considered foundational to trustworthiness and ethical behavior in personal and professional contexts.

Statutes

Laws established by a legislative body to regulate, authorize, sanction, grant, declare, or restrict.

Ethical Decisions

Choices made based on moral principles and values, considering what is right and fair for all involved parties.

Entrepreneurs

Individuals who initiate, manage, and accept the risks of a business venture in order to make a profit.