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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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Most popular questions from this chapter

In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.

a. There have recently been some important cost-saving inventions in the technology for making paint.

b. Paint is lasting longer, so that property owners need not repaint as often.

c. Because of severe hailstorms, many people need to repaint now.

d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.

How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied?

Will supply curves have the same shape in all

markets? If not, how will they differ?

How does one analyze a market where both

demand and supply shift?

Why do economists use the ceteris paribus assumption?
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