7.4.5—Deadweight welfare loss

Deadweight welfare loss is the net social surplus lost when output differs from the efficient quantity. Mutually beneficial trades are missed, or resources are used where their social cost exceeds their social benefit.

On a standard diagram it is the area between the relevant marginal social benefit and marginal social cost curves over the units between market and efficient output. The shape and size depend on elasticities and the gap.

A monopoly that restricts output below the point where P=MC creates a triangle of lost surplus: consumers who value an extra unit above its cost cannot buy it.

A transfer from consumer to producer is not automatically deadweight loss; the loss is the surplus that disappears, not merely who receives it.