Recap

This past week, you were introduced to the concept of economic or total surplus, which is the sum of consumer and producer surplus. In all markets, consumers and producers gain some benefit of participating in markets. This total surplus changes both for consumers and producers as changes in price occur due to changes in supply and demand.

Sometimes though, a deadweight loss occurs. Deadweight loss is just jargon for a loss of output that results when some intervention occurs in markets that reduce the amount of output that consumers demand and producers want to supply. It also occurs if too much of something is produced that no one demanded. The best example is the imposition of taxes on either producers or consumers or both.

We saw a few examples of deadweight loss by examining markets with both price floors and price ceilings, as well as markets in which the government imposes excise taxes.

Looking Ahead

The coming week is an important one because your first study guide is due, as well as having your first exam. Please make sure to complete the study guide in its entirety and be familiar with the terms associated with this assignment. We will review for the exam the first part of next week.