The Demand and Supply Curves for a Product Are Q^D

question 58

Multiple Choice

The demand and supply curves for a product are Q^D = 50 - 0.5P and Q^S = 2.5P + 5, where P is the price per unit and Q measures millions of units. If the government levies a $1.20 per unit tax on buyers, what is the size of the deadweight loss?

• A) $300,000
• B) $500,000
• C) $800,000
• D) $1.2 million

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Definitions:

Framing

The way information is presented or communicated, which influences how it is perceived and interpreted.

Anchoring Effect

A cognitive bias where individuals rely too heavily on an initial piece of information (the "anchor") when making decisions.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and should not affect future decision-making processes.

Discrimination Learning

A cognitive process where an organism learns to respond differently to various stimuli because they are associated with different outcomes.