Deadweight loss refers to the benefits lost by consumers and/or producers when markets do not operate efficiently. The term deadweight denotes that these are benefits unavailable to any party. A price ceiling set below the equilibrium price in a perfectly competitive market will result in a deadweight loss because it reduces the quantity supplied by producers. Both producers and consumers lose surplus because less of the good is produced and consumed. The reduced (ceiling) price benefits consumers but hurts producers, so there is a transfer from one group to the other. The real culprit, then, and the primary source of the deadweight loss, is the reduction in the amount of the good in the market.
Deadweight loss refers to the benefits lost by consumers and/or producers when markets do not operate efficiently.
The term deadweight denotes that these are benefits unavailable to any party. A price ceiling set below the equilibrium price in a perfectly competitive market will result in a deadweight loss because it reduces the quantity supplied by producers.
Both producers and consumers lose surplus because less of the good is produced and consumed. The reduced (ceiling) price benefits consumers but hurts producers, so there is a transfer from one group to the other. The real culprit, then, and the primary source of the deadweight loss, is the reduction in the amount of the good in the market.
Deadweight loss refers to the benefits lost by consumers and/or producers when markets do not operate efficiently. The term deadweight denotes that these are benefits unavailable to any party. A price ceiling set below the equilibrium price in a
ReplyDeleteperfectly competitive market will result in a deadweight loss because it reduces the
quantity supplied by producers. Both producers and consumers lose surplus because less of the good is produced and consumed. The reduced (ceiling) price benefits consumers but hurts producers, so there is a transfer from one group to the other. The real culprit, then, and the primary source of the deadweight loss, is the reduction in the amount of the good in the market.
GUIDELINE ANSWER:
ReplyDeleteDeadweight loss refers to the benefits lost by consumers and/or producers when markets do not operate efficiently.
The term deadweight denotes that these are benefits unavailable to any party. A price ceiling set below the equilibrium price in a perfectly competitive market will result in a deadweight loss because it reduces the quantity supplied by producers.
Both producers and consumers lose surplus because less of the good is produced and consumed. The reduced (ceiling) price benefits consumers but hurts producers, so there is a transfer from one group to the other. The real culprit, then, and the primary source of the deadweight loss, is the reduction in the amount of the good in the market.