Exhibit 3A-2 Comparison of Market Efficiency and Deadweight Loss

question 115

Multiple Choice

Exhibit 3A-2 Comparison of Market Efficiency and Deadweight Loss

As shown in Exhibit 3A-2, if the market price falls from P₁ to P₂, then:

• A) total surplus increases.
• B) deadweight loss increases.
• C) overproduction increases.
• D) underproduction decreases.

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Definitions:

NPV

Net Present Value, a financial metric used to assess the profitability of an investment, calculated as the difference between the present value of cash inflows and outflows.

IRR

Internal Rate of Return is a financial metric used to evaluate the profitability of potential investments, representing the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Mutually Exclusive

Describes options or projects that cannot both be chosen such that if one is selected, the other must be rejected.

Value Foregone

The potential value lost when choosing one investment or action over another, often considered an opportunity cost.