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Microeconomics: Deadweight lost is defined as the net loss of total consumer plus producer surplus. With...

Microeconomics:

Deadweight lost is defined as the net loss of total consumer plus producer surplus. With an appropriate diagram/s, briefly explain in what circumstances the deadweight loss due to the reduction in consumption could vary?

Please explain briefly and clearly

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Answer #1

The size of the dead weight loss depends on the price elasticities of demand curve and supply curve. The size of the dead weight loss varies directly with the price elasticities of demand curve and supply curve. The inelastic the demand curve, the less is the dead weight loss and vive versa.

Consider the size of the tax and supply elasticity are same in the given figure. Only price elasticity of demand varies:

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