Overview
Deadweight loss is a critical concept in economics that highlights the inefficiencies in a market when equilibrium is disrupted. It often arises from government interventions like taxes and subsidies, which can distort prices and reduce the quantity of goods traded. Understanding deadweight loss hel...
Key Terms
Example: At a price of $10, the quantity supplied equals the quantity demanded.
Example: If a consumer is willing to pay $15 for a product but buys it for $10, their surplus is $5.
Example: If a producer is willing to sell a product for $5 but sells it for $10, their surplus is $5.
Example: A tax on a good can create deadweight loss by reducing the quantity sold.
Example: Rent control is a form of price control that limits how much landlords can charge.
Example: If a tax is imposed on a product, both consumers and producers may share the burden.