deadweight loss
DED-wayt loss
/ˈdɛdˌweɪt lɒs/
The loss of economic efficiency that can occur when equilibrium for a good or service is not achieved.
Represents pure wasted economic value that is lost to society as a whole, gained by neither consumer nor producer.
The story behind the word. Originally a maritime term for inert cargo like coal or iron that added weight without active value. Early 20th-century welfare economists adopted it to label economic welfare destroyed by market distortions.
Word relationships
- allocative inefficiency: Allocative inefficiency is the broad failure to allocate resources optimally; deadweight loss is the exact quantitative measure of lost welfare.
- economic surplus: Economic surplus is the net benefit gained by consumers and producers combined.
Commonly confused with
- inefficiency: Inefficiency is a general condition; deadweight loss is the specific total dollar value of uncaptured social benefit.
Collocations
- create deadweight loss
- minimize deadweight loss
- deadweight loss triangle
Example sentences
- "Excessive sales taxes can create deadweight loss by discouraging trades that both buyers and sellers would have preferred." Tax policy taxation study
- "When a monopolist restricts production to raise prices, deadweight loss measures the lost social welfare." Monopoly pricing analysis
Memory hook
DEAD weight is heavy cargo that yields zero benefit to anyone. Value lost to thin air.
When not to use
Do not use to describe simple transfer payments where money moves from buyer to seller without net value destruction.
Fun facts
- In economic diagrams, deadweight loss is famous for forming a triangular area between supply and demand curves, often called Harberger's triangle.
Related words
Explore more words
Consumer Surplus, pareto-optimal, efficiency, surplus, efficient, marginalism
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