Overview
Calculating deadweight loss is essential for understanding how market inefficiencies arise from taxes, subsidies, and other distortions. It represents the lost economic welfare that occurs when the market does not reach equilibrium. By analyzing consumer and producer surplus, we can visualize the im...
Key Terms
Example: At a price of $10, the quantity supplied and demanded is equal.
Example: If a consumer is willing to pay $15 for a product but buys it for $10, their consumer surplus is $5.
Example: If a producer is willing to sell a product for $5 but sells it for $10, their producer surplus is $5.
Example: A tax on a good can create deadweight loss by reducing the quantity sold.
Example: If a tax is imposed on sellers, they may raise prices, affecting consumers.
Example: Analyzing the effects of a subsidy on consumer welfare.