Question

Deadweight loss is

Answer 1

Answer: D.           Reduction in economic surplus resulting from a market not being in competitive equilibrium

Explanation: A deadweight loss, also known as excess burden or allocative inefficiency, is a loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved. The economic efficiency is defined as the market outcome in which marginal benefit to consumers of the last unit produced is equal to marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. That can be caused by monopoly pricing in the case of artificial scarcity, an externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage and living wage laws.  

Deadweight loss created by a binding price ceiling. The price ceiling is the maximum amount sellers can charge. Examples of price ceilings include price controls and rent controls. The producer surplus always decreases, but the consumer surplus may or may not increase; however, the decrease in producer surplus must be greater than the increase, if any, in consumer surplus that is difference between the highest price a consumer is willing to pay and the lowest price.

It is important to note that while certain members of society may benefit from the imbalance, others will be negatively impacted by an equilibrium shift.