AP MicroeconomicsSupply & Demand
Deadweight Loss
Deadweight loss is the loss of total surplus that occurs when a market is not at its efficient competitive equilibrium.
It measures mutually beneficial trades that fail to occur because of a price control, tax, monopoly, or externality. On a supply-and-demand graph it is the triangular area between the demand and supply curves over the units no longer traded. A market is allocatively efficient when deadweight loss is zero.
Formula / Example
DWL = ½ × base × height = ½ × |Q_efficient − Q_actual| × (price wedge between supply and demand).
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