Which statement best defines deadweight loss on a supply and demand graph?

Which statement best defines deadweight loss on a supply and demand graph?

• A. The loss of total surplus from inefficient production or consumption; represented by the area between supply and demand curves beyond the equilibrium quantity.
• B. The gain in producer surplus due to price increases.
• C. The total area under the demand curve.
• D. The area of consumer surplus only.

Answer: (A)

Deadweight loss is the reduction in total surplus (the sum of consumer and producer surplus) that occurs when the quantity traded in the market isn’t the efficient equilibrium quantity. On a supply–demand graph, this loss shows up as the triangular area between the supply and demand curves beyond the equilibrium quantity, representing trades that would have added value but don’t occur. It’s not just a gain in producer surplus, and it’s not the total area under the demand curve or consumer surplus alone.

Deadweight loss is the reduction in total surplus (the sum of consumer and producer surplus) that occurs when the quantity traded in the market isn’t the efficient equilibrium quantity. On a supply–demand graph, this loss shows up as the triangular area between the supply and demand curves beyond the equilibrium quantity, representing trades that would have added value but don’t occur. It’s not just a gain in producer surplus, and it’s not the total area under the demand curve or consumer surplus alone.