A deadweight loss:
A) can be large in a perfectly competitive market.
B) is a reduction in aggregate surplus below its maximum possible value.
C) is independent the amount produced and consumed.
D) is equal to the difference between total willingness to pay and the total avoidable cost of production.

Question

Quizplus · Accepted Answer

A deadweight loss is a reduction in economic efficiency resulting from a market not being in equilibrium. It occurs when resources are wasted, opportunities are lost, and social welfare is reduced. Therefore, a deadweight loss is a reduction in total surplus below its maximum possible value, which is what option B states. Option A is incorrect because deadweight loss is more likely to occur in a market that is not perfectly competitive, whereas in a perfectly competitive market, the market outcome is efficient. Option C is incorrect because the amount produced and consumed determine the size of the deadweight loss. Option D is incorrect because the difference between total willingness to pay and the total avoidable cost of production is known as consumer surplus, not deadweight loss.

A Deadweight Loss