Anyways, I have had a request for a definition of 'Werlfare Loss' otherwise known as 'Deadweight Loss', so here it is:
Enjoy the perfect Dubai weather this weekend...gggrrrrrrrr!!
Welfare is the benefit to society that the production/consumption of a good brings.
Explanation:
The issue is that the free market does not take into account all the benefits (positive externalities) or the loss (negative externalities) that a product brings to society. You can show this using the market failure diagrams below....
Negative externalities:-
Positive Externalities:-
I cant find one to upload and am in a rush, but you guys know the one, when D (PMB) is lower that D1 (SMB)
Have a good weekend....do some work!!!
Alternative definitions of welfare/deadweight loss have a tendency to show how the loss occurs from monopolies etc. Do we need to know them?
ReplyDeleteNot at unit 2, I don't think.
ReplyDeleteSami.
The welfare loss for Monopolies is still the loss to society, so same definition. We went through the diagram in class, remember, where the monopoly firm cuts supply and raises price, capturing consumer surplus.
ReplyDeletehey this is awsome ...dont kno why im so excited probs because i have just found the diagram for my eco essay thanx loads
ReplyDeleteI Think the deadweight loss is supposed to be the triangle below it. The area which you shaded should be a net benefit from not producing Q1.
ReplyDeleteThe deadweight loss is the lost triangle pie due to a lower output. It also represent the loss from market. DWL is also showing the gap between the Pareto Optimal and Equilibrium. In my opinion we cannot interchange it, even the width are is the same. Suppose the externalities cost is not constant, but progresively move as output increase, the result will be different.In the case like this, the Net Benefit will be higher than the DWL.
Regard
TIMBUL HUTAHEAN