Which of the following statements most accurately describes the concept of deadweight loss?
A)the loss of production that occurs when a binding price floor or ceiling is imposed
B)the loss of consumption that occurs when a binding price floor or ceiling is imposed
C)the overall loss of economic surplus that occurs when a market is inefficient
D)the total market value of the goods no longer produced when quantity exchanged is below the equilibrium quantity
E)the loss of economic surplus to consumers

Question

Quizplus · Accepted Answer

Deadweight loss refers to the loss of economic surplus that occurs when a market is inefficient, meaning that the quantity exchanged is not at the equilibrium level. This can happen when there are market distortions such as taxes or subsidies, quotas, or price floors or ceilings. Deadweight loss measures the inefficiency of a market and the extent to which it fails to allocate resources optimally. A and B are incorrect because they only refer to the loss of production or consumption due to a price floor or ceiling, rather than the overall inefficiency of the market. D is incorrect because it only refers to the quantity of goods exchanged, rather than the economic surplus lost. E is incorrect because it only refers to the loss to consumers, whereas deadweight loss encompasses the loss to both consumers and producers.

Which of the Following Statements Most Accurately Describes the Concept