Question

Deadweight loss is A. the reduction in consumer expenditure resulting from market failure. B. the reduction in economic surplus resulting from a market not being in competitive equilibrium. C. the reduction in sales revenue resulting from market distortions. D. a measure of market equity.

Answer 1

Answer:

The answer is: B) The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Explanation:

Deadweight loss is an economic cost to society as a whole when market inefficiencies occur preventing it from reaching its equilibrium point. Market inefficiencies are caused by incorrect allocation of resources.

For example if a price ceiling is established, suppliers will tend to lower the quantity supplied while the quantity demanded either increases or stays the same. That economic deficiency resulting from an unsatisfied demand is what we call deadweight loss.

Other causes for deadweight loss are price floors (reduction of the quantity demanded) and taxation (shifts on the demand or supply curves).