Deadweight Loss Calculator
This is an online deadweight loss calculator that helps you make swift and simple estimations of deadweight loss.
What is deadweight loss?
Deadweight loss, also known as excess burden, refers to the loss of economic efficiency due to various reasons such as monopoly pricing in the case of artificial scarcity, a positive or negative externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage. To calculate deadweight loss, you must know how the price has changed and the changes in the quantities required.
What causes deadweight loss?
Here are the three main elements that contribute to deadweight loss:
- Price floors: The government controls the price for a good or service. An example of a price floor would be minimum wage, where the government decrees that a person cannot sell their labor for less than a certain hourly rate.
- Taxation: The government charging above the selling price for a good or service. An example is the sales taxes that certain states impose on sales of some products or services.
- Price ceilings: The government sets a limit on how high a price can be charged for a good or service. An example of a price ceiling would be rent control – setting a maximum amount of money that a landlord can collect for rent.
Deadweight loss formula
The deadweight loss can be calculated as follows:
Deadweight Loss (DWL) = (Pn − Po) × (Qo − Qn) / 2
Keep reading for a deadweight loss formula.