1. What Is Deadweight Loss?

Deadweight loss (DWL) is the loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable. It represents the area of the triangle between the supply and demand curves when there's a market distortion.

2. How Is Deadweight Loss Calculated?

The calculator uses the standard deadweight loss formula:

Where:

• \( P_1 \) — Original equilibrium price before the change
• \( P_2 \) — New price after the change
• \( Q_1 \) — Original equilibrium quantity
• \( Q_2 \) — New quantity after the change

Explanation: The formula calculates the area of the triangle formed between the original and new equilibrium points on a supply-demand graph.

3. Importance of Deadweight Loss Calculation

Details: Calculating deadweight loss helps economists and policymakers understand the efficiency costs of taxes, subsidies, price controls, and other market interventions.

4. Using the Calculator

Tips: Enter the original and new price and quantity values. The calculator will determine the deadweight loss as the area between the supply and demand curves.

5. Frequently Asked Questions (FAQ)

Q1: What causes deadweight loss?
A: Deadweight loss typically occurs due to market distortions like taxes, subsidies, price ceilings/floors, tariffs, or monopolies.

Q2: Can deadweight loss be zero?
A: Yes, in a perfectly competitive market at equilibrium with no distortions, deadweight loss is zero.

Q3: How does elasticity affect deadweight loss?
A: The more elastic supply and demand are, the greater the deadweight loss from any given tax or distortion.

Q4: Is deadweight loss the same as lost revenue?
A: No, deadweight loss represents lost economic efficiency, not government revenue or producer/consumer surplus.

Q5: Can deadweight loss be negative?
A: No, deadweight loss is always positive or zero, representing a loss of efficiency.