Deadweight Loss

Deadweight loss indicates the amount of economic welfare lost to the economy due to either (a) a market failure or (b) interference by government in an otherwise efficient marketplace. The deadweight loss comes at the expense of consumer or producer welfare, or both (in varying degrees).

A producer’s monopolization of a market leads to a market failure when it is successful in restricting the quantity sold and raising the price per unit sold. This monopolization is a market failure because if the price could be lowered and the quantity sold increased this change would create a net benefit to society. In fact, the marginal (i.e., extra) benefit to consumers exceeds the marginal (i.e., extra) cost to the producer up to the point where the marginal social ...