Deadweight loss and market failure are created when a market produces
A) less than the efficient quantity, but not when more than the efficient quantity is produced.
B) either more or less than the efficient quantity.
C) more than the efficient quantity, but not when less than the efficient quantity is produced.
D) the efficient quantity.
E) None of the above answers is correct because deadweight loss has nothing to do with the efficient quantity.

Question

Quizplus · Accepted Answer

Deadweight loss and market failure are created when a market produces either more or less than the efficient quantity. When a market produces less than the efficient quantity, there is a deadweight loss because some potential gains from trade are not realized. When a market produces more than the efficient quantity, there is also a deadweight loss because the cost of producing an additional unit exceeds the benefit to buyers, leading to a net loss in overall welfare. Market failure can occur in either case because the market is not producing the socially efficient outcome.

Deadweight Loss and Market Failure Are Created When a Market