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What is a Deadweight Loss?

 , November 18, 2015
A deadweight loss is an inefficiency in an economy that prevents markets from moving towards equilibrium. This can mean that too much or too little of a particular good or asset is produced.
Common 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.
Overview: Deadweight Loss
FunctionEconomics
DefinitionAn inefficiency that prevents markets from reaching equilibrium.
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.
Related TechniquesCoercive Monopoly
Excess Burden
Equilibrium

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