Deadweight Loss (DWL)

Definition

Deadweight loss refers to the economic inefficiency that occurs when the quantity of a good or service produced is less than the socially optimal quantity. It represents the loss of consumer and producer surplus due to market distortions.

Related terms

Socially Optimal Quantity and Price (D=MC): This term refers to the point where demand equals marginal cost, resulting in maximum social welfare.

Price Ceiling: A price ceiling is a government-imposed maximum price set below the equilibrium price, leading to shortages and potential deadweight loss.

Consumer Surplus: Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay.