Deadweight Loss

Definition

Deadweight loss refers to the economic inefficiency that occurs when the allocation of goods and services is not at the socially optimal point, resulting in a loss of total surplus.

Related terms

Socially Optimal Point: The socially optimal point is the allocation of goods and services that maximizes total surplus, where marginal benefit equals marginal cost.

Excess Burden: Excess burden is another term for deadweight loss, representing the welfare loss caused by market inefficiencies.

Tax Incidence: Tax incidence refers to how the burden of a tax is distributed between buyers and sellers, which can lead to deadweight losses if it distorts incentives.