Dead weight Loss (Cost of Tax, Market Failure) In Economics;*
(S.Sadia Amber Jilani, Faisalabad, Punjab, Pakistan)
*--->Dead weight Loss (Cost of Tax) In Economics;*
Short Notes by
*S.Sadia Amber Jilani*
*(Economist)*
*Definition :*
A *deadweight loss* is a cost to society created by *market inefficiency,* which occurs when supply and demand are out of equilibrium.
*Causes:*
*1_* Price Flooring / living wages law/ minimum Wages.
*2*_ Price Ceiling
*3*_ Tax (Some Part of which are given by consumer and some by producer)
*4*_ Monopoly( in which Only A producer wants to take much more profit).
*Direct Effects*
*1_* Product is overvalued (Price Increases) And
*2_* Variations in both demand and supply of a product in the market and these are out of the equilibrium point where demand and supply is equal. *Remember* in Dead Weight Loss situation, the demand and supply of a product is not equal.
*3_* Now Total Surplus = CS +PS + Govt Surplus.
*Conciquences:*
*1_* Wastage of Resources,
*2_* Consumer Surplus and Producer Surplus are reduced (Total Surplus= CS+PS is reduced), And Result is
*3_* Cost to society.
*How Can Eliminate DWL:*
If the government gives tax breaks and allows the market to work with its Economic Powers(Demand and Supply) it can be controlled.