Concepts
Deadweight Loss
Also Known As Excess Burden
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Deadweight loss is the loss of total economic welfare that occurs when a good or service is produced or consumed at a quantity where the marginal benefit to society no longer equals the marginal cost, so some mutually beneficial trades never happen. It is the standard measure economists use for the inefficiency a tax, a price ceiling or floor, a monopoly, or an externality introduces into an otherwise well functioning market, because the value lost is not transferred to anyone, it simply disappears from the economy.
Facts
SignificanceDeadweight loss is the standard measure economists use for the inefficiency a tax, a price ceiling or floor, a monopoly, or an externality introduces into an otherwise well-functioning market, because taxes in particular prevent buyers and sellers from realizing some of the gains from trade. 1 No single economist is credited with proposing deadweight loss as a concept; Arnold Harberger is credited only with the graphical Harberger's triangle, a visualization tool, not the underlying concept, so proposed-by and origin-year are left unwritten. Sources
1. Wikipedia
Wikimedia FoundationDeadweight lossQuote, Deadweight loss
deadweight loss is the loss of societal economic welfare
1. Wikipedia
Wikimedia FoundationDeadweight loss, Taxes and subsidies sectionQuote, Deadweight loss, Taxes and subsidies section
Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.
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