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Deadweight loss

Deadweight loss Definition

In economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium for a good or service is not Pareto optimal. In other words, either people who would have more marginal benefit than marginal cost are not buying the product, or people who would have more marginal cost than marginal benefit are buying the product. Dead weight loss can also be helpful when there is a negative externality. Dead weight loss should be called dead weight gain when there is a negative externality because it helps all the people that the negative externality hurts.


Additional meaning of Deadweight loss:

Causes of deadweight loss can include monopoly pricing (see artificial scarcity), externalities, taxes or subsidies , and binding price ceilings or floors. The term deadweight loss may also be referred to as the "excess burden" of monopoly or taxation.


RELATED TERMS
Demand curve
RELATED CATEGORIES
Economy




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