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What is dead weight loss (DWL)
the lost economic benefit that happens when a market is not working efficiently. It means that some potential trades (buying and selling) don’t happen, even though they would have made both buyers and sellers better off.
How do tariffs create DWL?
A tariff increases the price of imports, so fewer people buy them. This reduces total transactions, causing deadweight loss as some trades that could have happened no longer do.
How does a tariff affect consumer surplus?
Consumer surplus falls because prices increase, meaning some consumers pay more while others stop buying the good entirely.
What two areas make up DWL from tariffs?
Consumers who stop buying due to higher prices.
World efficiency loss—the reduction in global trade efficiency because fewer imports are bought, leading to misallocation of resources and lost economic welfare.
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