Economics Consumer Surplus And Producer Surplus Questions Medium
The impact of a change in demand on deadweight loss depends on the elasticity of supply and demand. Deadweight loss refers to the loss of economic efficiency that occurs when the equilibrium quantity traded in a market is less than the socially optimal quantity.
If demand becomes more elastic (responsive) to price changes, a change in demand will have a larger impact on deadweight loss. This is because a more elastic demand means that consumers are more sensitive to price changes, and a change in demand will result in a larger shift in the quantity traded. As a result, deadweight loss will increase.
On the other hand, if demand becomes less elastic (inelastic) to price changes, a change in demand will have a smaller impact on deadweight loss. In this case, consumers are less sensitive to price changes, and a change in demand will result in a smaller shift in the quantity traded. Consequently, deadweight loss will decrease.
In summary, the impact of a change in demand on deadweight loss depends on the elasticity of demand. A more elastic demand will lead to a larger impact on deadweight loss, while a less elastic demand will result in a smaller impact.