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Chapter 3: Q.35 (page 78)

What is deadweight loss?

Short Answer

Expert verified

A social cost suffered as a result of market inefficiency, which occurs when supply and demand are out of balance, is understood as a deadweight loss.

Step by step solution

01

Cause of deadweight loss:

Deadweight losses are caused by poor resource allocation, which might be caused by a spread of interventions like price limits, price floors, monopolies, and levies.

02

Explanation

A deadweight loss is the societal cost incurred as a results of market inefficiency, which arises when supply and demand are out of balance. Deadweight loss is primarily utilised in economics, but it will be applied to any shortcoming created by inefficient resource allocation.

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