Question

1. What is deadweight loss and how does it arise?

2. Why do you think a policymaker and a consumer might interpret this deadweight loss differently?

Answer 1

1. A cost to society created by market inefficiency, is known as the deadweightloss. A deadweight loss generally arises when a deficiency is caused by an inefficient allocation of resources.

Example, price ceiling causes deadweight loss trough price alterations.

2. Policy makers and consumers might interpret this dead weightless differently as, one thing which is good to one need not to be good for the other also. For example, price ceiling creates a dead weight loss but it is beneficial for consumers in the other hand price flooring creates dead weight loss and it is not beneficial for consumers.