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Chapter 3: Q 35 (page 78)

What is deadweight loss?

Short Answer

Expert verified

A deadweight loss is a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium.

Step by step solution

01

Effect

The imposition of a price floor or a price ceiling will prevent a market from adjusting to its equilibrium price and quantity, and thus will create an inefficient outcome.

Deadweight loss disrupts the natural market equilibrium with consumers loosing out on products that they demand and suppliers loosing out potential revenue from the supply.

02

Step Diagram

The imposition of a price floor or a price ceiling will prevent a market from adjusting to its equilibrium price and quantity, and thus will create an inefficient outcome.

The deadweight loss weight area ids grey colored area

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