Deadweight Loss
Deadweight loss is the reduction in total economic surplus resulting from market distortion. It represents inefficiency - goods that would benefit consumers but cost producers less to make are not produced or traded.
Real World
When the UK government imposed a 20% sugar tax on soft drinks in 2018, some consumers who valued a sugary drink above its production cost but below the new taxed price stopped buying, creating lost surplus that benefited no one.
Exam Focus
Label the deadweight loss triangle clearly on diagrams — marks are awarded for accurate shading and correct identification of the welfare loss area.
How well did you know this?