deadweight loss

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Deadweight Loss

The loss of economic activity due to excessive taxation. For example, suppose a person on welfare is offered a job that pays more than he/she receives in welfare benefits. If taxes are too high, however, the person may find that his/her aftertax income is in fact lower than what he/she was receiving on welfare. The person might then rationally decide to stay on welfare. The deadweight loss is both the cost of keeping that person on welfare and the loss incurred from the economy at large from losing that person's production. It is also called the excess burden of taxation.
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Fig. 36 Deadweight loss .

deadweight loss

the reduction in CONSUMERS’ SURPLUS and PRODUCERS’ SURPLUS that results when the output of a product is restricted to less than the optimum efficient level that would prevail under PERFECT COMPETITION. Fig. 36 shows the demand and supply curves for a product, and their interaction establishes the equilibrium market price OP. At this price, consumers’ surplus is shown as the diagonally shaded area ABP and producers’ surplus as the vertically shaded area APO. If output is restricted from OQ to OQ1, then the price paid by consumers would rise to OP1 and consumers’ surplus would be reduced by the amount ACE, while the price received by producers would fall to OP2 and producers’ surplus would be reduced by the amount ADE.

Deadweight loss is particularly likely to occur in markets dominated by MONOPOLY suppliers who restrict output in order to keep prices high.

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This would result in deadweight losses as remittances are highly cost-elastic.
At the other end, Martin Feldstein estimated $609 billion in deadweight losses with the payroll tax and $388 billion without.
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While price discrimination may improve consumer surplus, for example, Utah Pie, this article will demonstrate other situations when price discrimination leads to both lower consumer surplus and overall deadweight losses to social welfare.
That is, most unjust government policy creates large deadweight losses.
Evolution of social surplus when introducing the clawback tax and the deadweight losses
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The Funding for Lending scheme, the National Loan Guarantee Scheme, and UK Guarantees are all welcome, although the design of the schemes means significant deadweight losses are likely.
assess the deadweight loss from personal income tax in the presence of tax evasion: adjustments for tax evasion can alter the magnitude of deadweight losses from personal income taxes and corresponding welfare gains from the tax reform.
The [section] 506 Solution to Deadweight Losses from