CostCommon causes of deadweight loss are excessive taxes, monopolies, externalities and subsidies. For example, a railway monopoly may set passenger ticket prices far higher than what the market rate would be in a competitive environment. The result, may be that rail fails to be a viable alternative to driving resulting in a deadweight loss because rail lines go underutilized.
ExamplesSubsidies leading to overproduction.Taxes leading to underproduction. Burdensome regulations leading to underproduction.Lack of regulation resulting in destruction of common resources.A monopoly that results in abnormally high prices.
|Overview: Deadweight Loss|
An inefficiency that prevents markets from reaching equilibrium.