Presented by: Carmelo Nieves Jonathan Chevalley Kristy O'Hearne Mohammad Hussain Saif Butt Jessica Blankenship

What

is deadweight loss?

The fall in total surplus that results from a market

distortion, such as a tax.

To better understand and illustrate deadweight losses, lets first review some basic economic concepts :

Supply The amount of a good that sellers are willing and able to sell. Demand The amount of a good that buyers are willing and able to purchase. Consumer Surplus The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it Producer Surplus The amount a seller is paid for a good minus the sellers cost of providing it.

Lets look at an example of consumer and producer surplus in terms of a product that you might purchase regularly like pizza. The Demand Schedule for Pizza
Price More than $18.00 Buyers None Quantity Demanded 0

$16.00 to $18.00 $14.00 to $16.00 $12.00 to $14.00 $10.00 to $12.00

Saif Kristy Carmelo Mohammad & Johnathan

1 2 3 4

Now lets take a look at our options to purchase our pizza. Here are the local pizza shops from which we can purchase pizza and the prices they charge. The Supply Schedule for Pizza
Price More than $18.00 Sellers Two Gals Pizza Quantity Demanded 0

$16.00 to $18.00 $14.00 to $16.00 $12.00 to $14.00 $10.00 to $12.00

Pizza Palace Pizza Guys Big Als Pizza None

1 2 3 4

Now, lets compare our demand schedule for pizza with our supply schedule for pizza. From examining the economics contained within these schedules we can see that not all buyers will be able to purchase pizza in the quantities they would like from all pizza shops. And all pizza shops wont be able to sell their pizza to all consumers looking to buy.

 Price

elasticity is what determines whether the deadweight loss from a tax is large or small There are two different types of price elasticities, one for demand and one for supply. The price elasticity measures how much the quantity supplied and quantity demanded respond to change.

 What

is the difference between an Elastic and inelastic good? An Elastic good is a good that when the price increases the demand or amount of people that are willing to purchase it decreases like cologne, jewelry, and movie tickets. An Inelastic good is something people will buy no matter the price like gas, and life saving medications.

 The

tax is smaller when the supply is inelastic

 The

same concept applies to demand as you can see below

 For

our class example were using the good pizza. Pizza is considered an Elastic good because the more expensive the price the less people are willing to buy. This being said if there was a tax applied to pizza sales the deadweight loss would be greater (as you can see from the previous graphs).

 Pop

Quiz

 Contributors/Works

Cited