Deadweight loss
Deadweight loss is the net benefit missed by society.
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Deadweight loss is the net societal welfare lost when a good is produced or consumed at a quantity where marginal benefit does not equal marginal cost.[1] This loss represents benefits that are missed out on and is not regained by any other party.[1] Both producers and consumers bear the deadweight loss, as the net benefit lost is not regained by any other party.[1]
Quick Facts
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Facts from the source article.
Key facts and history
A tax creates deadweight loss by driving a wedge between what consumers pay and what producers receive.[2] The deadweight loss can be visualized as the triangular area between the supply and demand curves at the taxed quantity.[3] A monopoly creates deadweight loss similarly by charging a price above marginal cost.[3] Unlike a government tax, monopoly profits are collected by a private firm.[3]
Harberger's triangle is the graphical representation of deadweight loss from government intervention in a perfect market.[4] A tax creates a barrier that stops buyers and sellers from completing trades that would have been mutually beneficial.[3] After a tax is imposed, the amount traded drops from the level seen in a free market to a reduced quantity.[3] The degree to which a tax disrupts the market is governed by the elasticities of supply and demand.[3]
What the cited sources add
The "Negative Externality" source states that a deadweight welfare loss results when marginal benefit does not equal marginal cost.[5] That source also notes the deadweight welfare loss is shown in gray on its graph.[5]
References
- Wikipedia, "Deadweight loss" (CC BY-SA 4.0), which cites: Dickson, "Optimal Concentration and Deadweight Losses in Canadian Manufacturing", Review of Industrial Organization, 1997, p. 719–732 (original not read by us) en.wikipedia.org
- Wikipedia, "Deadweight loss" (CC BY-SA 4.0), which cites: Gruber, "Public Finance and Public Policy", Worth Publishers, 2013 (we also read that source) en.wikipedia.org
- Wikipedia, "Deadweight loss" (CC BY-SA 4.0), which cites: N. Mankiw-David Hakes, "Principles of microeconomics", South-Western Cengage Learning, 2012 (original not read by us) en.wikipedia.org
- Wikipedia, "Deadweight loss" (CC BY-SA 4.0), which cites: "Negative Externality" (we also read that source) en.wikipedia.org
- "Negative Externality". facts only, no text reused. economics.fundamentalfinance.com
Each numbered sentence above was checked against the source it cites before publication. Sentences citing Wikipedia adapt text from the English Wikipedia article Deadweight loss (contributors), used under CC BY-SA 4.0; this entry is available under the same licence. Other sources were used for facts only; no text or images are copied from them.
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Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Deadweight loss (CC BY-SA 4.0).
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