Grade Booster student workshops are back in cinemas for 2022. Learn more

Economics

Student Videos

Deadweight Loss of Welfare Short Answers

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

This video looks at the answer to two short questions on the concept of the deadweight loss of welfare.

The two questions are:

  1. What is meant by a deadweight loss?
  2. Explain why the long run equilibrium in monopoly is likely to lead to a deadweight loss of economic welfare
Short Answers - Deadweight Loss of Welfare

What is meant by a deadweight loss?

A deadweight loss is the loss in producer and consumer surplus due to an inefficient level of production perhaps resulting from one or more market failures or government failure.

Explain why the long run equilibrium in monopoly is likely to lead to a deadweight loss of economic welfare.

  • A profit-maximising monopoly will produce an output where marginal revenue = marginal cost
  • This price will be higher and the output will be lower than under competitive conditions
  • Higher prices cause some consumer surplus to become producer surplus (i.e. abnormal monopoly profit)
  • But because output is below the competitive equilibrium, there will be a deadweight loss of welfare, also known as the social cost of monopoly.

Boston House,
214 High Street,
Boston Spa,
West Yorkshire,
LS23 6AD

Tel: +44 0844 800 0085

© 2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.