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What is deadweight loss? Deadweight loss is lost gains from trade caused by a market inefficiency. One example of deadweight loss is trades not made because of a

What is deadweight loss?

Deadweight loss is lost gains from trade caused by a market inefficiency.

One example of deadweight loss is trades not made because of a tax. The value of trades is equal to the price consumers are willing to pay minus suppliers cost to provide the goods. When trades no longer occur because of a tax, that value is no longer produced, and that's deadweight loss.

But taxes are not the only cause of deadweight loss. To learn more, see the Introduction to Externalities video from MRU’s Principles of Microeconomics course.

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