Deadweight loss is:
A) necessary to ensure that resources are channeled to their highest-valued use.
B) the loss to the economy from firms going out of business due to competition.
C) usually offset by deadweight gains.
D) the total of lost consumer and producer surplus when not all mutually profitable gains from trade are exploited.

Question

Quizplus · Accepted Answer

Deadweight loss refers to the total welfare loss to the society that results from a market inefficiency or failure to optimize resource allocation. It occurs when the quantity traded in the market is lower than the socially optimal level, leading to a loss of both consumer and producer surplus. This loss arises from missed opportunities for mutually beneficial trade because some potential buyers and/or sellers are excluded from the market due to the distortion caused by taxes, subsidies, regulations, or other factors. There is no such thing as deadweight gains- a term that implies that some market distortions actually improve welfare- as any such gain would be a non-deadweight gain.

Deadweight Loss Is