Question

Explain why deadweight loss is a loss to the whole market.

Answer 1

Deadweight loss is a loss to economy whne economic outcome is not achievable. Daedweight loss creates market inefficiency. It occurs when supply and demand is not met. When consumers do not match with expected utility then they are likely to purchase less item which leads to reduction in the overall welfare in the society. There are several reasons for which deadweight loss occurs like imperfect markets, price ceiling,price floor etc. Also deadweight loss occurs due to taxation. Deadweight loss consists of the loss of consumer surplus plus and the loss of producer surplus resulting in a loss of total surplus for the economy.