economics terms

Deadweight Loss

Deadweight loss is the inefficiency caused by, for example, a tax or monopoly pricing.  The diagram below shows a deadweight loss (labeled "gone") caused by a sales tax.  By causing a difference between the pre-tax price received by producers and the after-tax price paid by consumers, the government secures the area labeled Government Revenue.  This revenue comes at the expense of the consumer surplus and producer surplus that would have existed in the no tax equilibrium.  The "gone" triangle of deadweight loss goes to no one because those transactions are prevented by the sales tax.

This diagram is borrowed from Who Pays a Sales Tax?, which applies this concept.

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Economics Terms

Arbitrage Pricing
Arbitrage Profit
Average Cost
Balance of Payments
Budget Constraint
Call Option
Concave Function
Consumer Surplus
Consumption Function
Convex Function
Deadweight Loss
Demand Curve
Economic Agent
Economic Model
Economics Textbook
Endogenous Technical Change
Exchange Rate
Expectations Hypothesis
Federal Funds (Fed Funds) Rate
Fixed Exchange Rate
Floating Exchange Rate
Frictional Unemployment
Gross Domestic Product (GDP)
Income Effect
Income Elasticity
Indifference Curve
Interest Rate
Intertemporal Substitution
Jensen's Inequality
Marginal Cost
Marginal Product
Marginal Utility
Optimizing Behavior
Perfect Competition
Phillips Curve
Price Elasticity
Producer Surplus
Production Function
Production Possibility Frontier
Put Option
Reservation Wage Rate
Risk Aversion
Structural Unemployment
Substitution Effect
Supply Curve
Taylor Rule
Technological Growth
Term Structure
Theory of the Consumer
Theory of the Firm
Unemployment Rate
Utility Function
Velocity of Money
Yield Curve