Economics Welfare Economics Questions
Deadweight loss refers to the loss of economic efficiency that occurs when the equilibrium quantity of a good or service is not maximized due to market inefficiencies, such as taxes, subsidies, price controls, or externalities. It represents the reduction in total surplus or societal welfare caused by market distortions, where some potential gains from trade are not realized. Deadweight loss is typically depicted as the triangular area between the supply and demand curves, representing the value of foregone transactions.