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:

Person-Situation Debate

A controversy in psychology concerning whether an individual's behavior is more influenced by personality traits or by situational factors.

Funder's Analysis

An approach or method in psychological study that emphasizes the importance of accurate personality judgment and the conditions under which it can be achieved.

Predict

To declare or indicate in advance based on observation, experience, or scientific reasoning, especially about future occurrences or trends.

Perceptions

The process of interpreting sensory information to form an understanding of the environment around us, influenced by experience, beliefs, and behavior.