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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In the incentive problem, the central planners make a decision in their own interests and thus impose social costs and deadweight losses on the rest of the society.
To summarize: the aversion of the economics profession to the deadweight losses caused by protectionism seems warranted.
It would also be "inefficient and difficult" to administer as it would result in a migration of remittances out of the banking system and encourage "financial disintermediation." "This would result in deadweight losses as remittances are highly cost-elastic.
(1) On this view, society countenances the deadweight losses of
At the other end, Martin Feldstein estimated $609 billion in deadweight losses with the payroll tax and $388 billion without.
Once it has calculated the dynamic benefits and costs of the regulation, the PTO must estimate the static deadweight losses (or gains).
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
First, they have lower deadweight losses--an economic measure of the loss of economic efficiency--than competing policies because high deadweight losses increase the political advantage of opponents.
"PAEs have become a drag on technological innovation, inflicting billions of dollars in deadweight losses every year," stated Apple in one brief.