What is another name for deadweight loss?

Question

BlackTom AI · Accepted Answer

When considering the concept of deadweight loss, we are examining the total welfare loss that occurs when a market is not operating at maximum efficiency.
Option 1: Allocative efficiency. This term describes a situation where resources are allocated so that the marginal benefit equals the marginal cost, achieving the best overall allocation. Deadweight loss arises precisely because we fail to reach allocative efficiency, so this option does not define deadweight loss itself.
Option 2: Productive efficiency. This is about producing goods at the lowest possible cost, i.e., using inputs efficiently. Deadweight loss is not synonymous with productive efficiency; rather, it is a broader welfare concept tied to misallocation or underproduction/overproduction relative to demand and cost conditions.
Option 3: Efficiency loss. This phrase captures the essence of deadweight loss: a loss of total surplus (consumer plus producer surplus) due to market inefficiencies such as taxes, subsidies, price controls, or monopolies that prevent the market from achieving optimal output. It directly describes the phenomenon of reduced economic welfare from any deviation away from the efficient equilibrium.
Thus, the correct understanding is that deadweight loss is another name for efficiency loss, while the other terms refer to different concepts of efficiency in production or allocation, not to the welfare reduction caused by inefficiency.

What is another name for deadweight loss?

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