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In economics, deadweight loss is the loss of societal economic welfare due to production/consumption of a good at a quantity where marginal benefit (to society) does not equal marginal cost (to society) – in other words, there are either goods being produced despite the cost of doing so being larger than the benefit, or additional goods are not being produced despite the fact that the ...
The clearest example is a monopoly, where a single producer has complete control over supply and can extract a monopoly price. An oligopoly - a small number of producers - can also sustain an undersupply if no producers attempt to gain market share with lower prices at higher volume. Lack of supply competition can arise in many different ways:
I think you're right. The deadweight loss would be zero when either demand or supply is perfectly inelastic. The third graph in the page you mentioned is what happens when demand is inelastic. The white triangle of deadweight loss is small, and if the demand were completely inelastic (i.e. a vertical line,) it would be nonexistent.
A common position in economics is that the costs in a cost-benefit analysis for any tax-funded project should be increased according to the marginal cost of funds, because that is close to the deadweight loss that will be experienced if the project is added to the budget, or to the deadweight loss removed if the project is removed from the budget.
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Deadweight loss is considered detrimental to society and market participation. As such, monopolists have substantial economic interest in improving their market information and market segmenting. [43] There is important information for one to remember when considering the monopoly model diagram (and its associated conclusions) displayed here.
This is a net social loss and is called deadweight loss. It is a measure of the market failure caused by monopsony power, through a wasteful misallocation of resources. As the diagram suggests, the size of both effects increases with the difference between the marginal revenue product MRP and the market wage determined on the supply curve S ...
[1] [2] A monopoly occurs when a firm lacks any viable competition and is the sole producer of the industry's product. [1] [2] Because a monopoly faces no competition, it has absolute market power and can set a price above the firm's marginal cost. [1] [2] The monopoly ensures a monopoly price exists when it establishes the quantity of the ...