Deadweight Loss Law & Legal Definition


Deadweight Loss is a net loss in social welfare that results because the benefit generated by an action differs from the foregone opportunity cost. This is usually the combination of lost consumer surplus and lost producer surplus, and indicates of the inefficiency of a situation. A market diagram commonly illustrates deadweight loss, if the quantity of output produced results in a demand price that exceeds the supply price. The triangle formed by the demand curve above, supply curve below, and quantity to the left is the area of deadweight loss. If demand price equals supply price, this triangle disappears and so too does the deadweight loss. Deadweight loss can result from government actions (taxes, price controls) or from market failures (externalities, market control.)