First off, this is homework. It is due. I am frustrated.
I am not asking anyone to do my homework, but the prof was unable to adequately explain this to me and I am frustrated. I have read the question over so many times it has lost meaning.
So anyone that knows, I'd like help/an explanation/ a hint, something.
I am not asking for someone to 'do my homework' for me.
Just wanted to clarify.
The question is supposedly true/false & relates to a simple supply and demand graph (which I can't draw here but will describe).
The graph is set up where the supply curve = MC and the demand = MB, and the question goes:
"...suppose the government produced extra macaroni on its own less than MC, such that it created an artificially low price P" see graph. There is no dead weight loss here - only additional efficiency, given that Q">Q* quantity supplied is greater than equilibrium quantity. In other words, the more of a good produced, the higher the efficiency."
Not I can pick out a few false things - like the law of diminishing returns means the more you produce the lower the efficiency.
I do not understand how the govt' producing more of a good would affect supply and demand. The graph he has drawn I think is supposed to be false as well, but I don't know...
On the graph he gives, the new price P" is below equilibrium price and hits the supply and demand curves to the right of the equilibrium point - giving the impression that said government has created a lot of supply and low demand.
I am also not sure about the deadweight loss/excess burden...
Really confused. Anybody who can help me, even in part, even speculation (economically related of course), I appreciate. Thanks~