ECF1100 Lecture Notes - Deadweight Loss, Living Wage, Oligopoly
Document Summary
Week 4: government policies, market efficiency and costs of taxation and subsidies. Deadweight loss in the market due to government policies. The cost of market inefficiency, which happens when supply and demand are out of balance, is known as a deadweight loss. Deadweight loss, a term mostly used in economics, refers to any deficit brought on by an ineffective resource allocation. Deadweight losses may result from price floors, such as minimum wage and living wage regulations, price ceilings like price controls and rent restrictions, and taxation. A society"s resource distribution may also become inefficient with a decline in commerce. When supply and demand are out of equilibrium, a deadweight loss arises, which impairs the efficiency of the market. When items on the market are either overpriced or undervalued, market inefficiency results. While some members of society may profit from the imbalance, others will suffer if the equilibrium is disturbed.
