deadweight loss

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A measure of the welfare that is lost when the equilibrium in a market is not Pareto efficient. Deadweight loss arises, for example, when a monopoly prices above marginal cost or when the government levies a commodity tax. In the case of monopoly some of the consumer surplus that would be present if the market were competitive is captured as monopoly profit but some is lost; this is the deadweight loss. Similarly, a commodity tax captures some consumer surplus as government tax revenue but again some is lost.

Subjects: Economics.

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