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Where Does Deadweight Occur?
Where Does Deadweight Occur?
Maya Lin-Takahashi••7 min read
A deadweight loss
deadweight loss
Deadweight loss, also known as excess burden, is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced.
occurs when supply and demand are not in equilibrium, which leads to market inefficiency
market inefficiency
Market failure, in economics, is a situation defined by an inefficient distribution of goods and services in the free market. In market failure, the individual incentives for rational behavior do not lead to rational outcomes for the group.
. Market inefficiency occurs when goods within the market are either overvalued or undervalued.
Where is deadweight loss on a graph?
In the graph, the deadweight loss can be seen as the shaded area between the supply and demand curves. While the demand curve shows the value of goods to the consumers, the supply curve reflects the cost for producers.
What is an example of deadweight loss?
When goods are oversupplied, there is an economic loss. For example, a baker may make 100 loaves of bread but only sells 80. The 20 remaining loaves will go dry and moldy and will have to be thrown away – resulting in a deadweight loss.
Maya is a hardware enthusiast who tests and reviews smart home devices, smartphones, wearables, and audio gear. She focuses on practical consumer value and build quality.
