Deadweight Loss

Deadweight loss is the cost a society suffers when the market is inefficient. This is be achieved when the producer sells their product at a price that is not at equilibrium. As a result, the supply and demand are not at the equilibrium point. It is usually because of an inefficiency in allocating resources. Deadweight loss can be caused by minimum wage laws, price floors, price ceilings, and tax laws because they all disrupt a market from its free equilibrium. Furthermore, deadweight loss can be made by both consumers and producers. For example, if a company holds a monopoly, then they do not have to set the price at equilibrium, but at the price where they will earn the most profit. Because it is not a full allocation of resources from the company, it creates a deadweight loss at the expense of consumers. However, if a company sets the price to lower than equilibrium, perhaps because the government pays them back, the deadweight loss can be caused by the consumers when they buy the product even when they do not need it. This is also at the expense of the consumers.

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