Deadweight loss refers to:
A) losses in consumer surplus associated with excess government regulations.
B) situations where market prices fail to capture all of the costs and benefits of a policy.
C) net losses in total surplus.
D) losses due to the policies of labor unions.

Question

Quizplus · Accepted Answer

Deadweight loss refers to the net losses in total surplus that occur when the quantity of a good exchanged is below or above the socially efficient level. This can happen due to a variety of factors, such as taxes, subsidies, price ceilings/floors, and other market distortions. Option A is incorrect because it only refers to losses in consumer surplus and does not capture the full picture. Option B is incorrect because it only refers to situations where market prices fail to capture all the costs and benefits, but it does not necessarily result in deadweight loss. Option D is incorrect because labor unions do not necessarily cause deadweight loss on their own but can affect market outcomes in other ways.

Deadweight Loss Refers To