What this calculator does
Deadweight loss is the loss in overall economic efficiency that happens when a market does not settle at its free-market equilibrium, typically because of a tax, subsidy, price ceiling or price floor. Some trades that would have benefited both a willing buyer and a willing seller simply do not happen, and that lost value is the deadweight loss.
This calculator uses the standard simplified model: treating demand and supply as locally straight lines around the equilibrium point, deadweight loss becomes the area of a triangle, found from how much the quantity fell and the size of the price gap the distortion created between what buyers pay and what sellers receive. It is an educational approximation, not a forecast of any real market.
The formula
Deadweight loss equals half of the quantity change multiplied by the price gap at the new, distorted quantity: DWL = 0.5 × |quantity change| × |price gap|. The quantity change is the difference between the free-market equilibrium quantity and the actual quantity traded after the distortion. The price gap is the vertical distance between what buyers pay and what sellers receive at that new quantity, which equals the tax amount for a tax, or the gap between the demand and supply curve prices for a price ceiling or floor.
| Term | Meaning |
|---|---|
| Deadweight loss | The value of trades lost due to a market distortion, calculated as the area of the resulting triangle. |
| Equilibrium quantity | The quantity that would trade in a free market, with no tax, subsidy or price control. |
| Price gap | The difference between the price buyers pay and the price sellers receive at the distorted quantity. |
The inputs explained
| Field | What to enter |
|---|---|
| Free-market equilibrium quantity | The quantity that would trade at the free-market equilibrium, with no distortion. |
| Actual quantity after the distortion (tax, subsidy or price control) | The actual quantity traded after the tax, subsidy or price control is in place. |
| Price gap at that quantity (price buyers pay minus price sellers receive) ($) | The gap between the price buyers pay and the price sellers receive at that actual quantity. |
When to use it
Estimating the cost of a new tax
A tax drives a wedge between the price buyers pay and the price sellers receive, reducing the quantity traded; the resulting deadweight loss is the efficiency cost of the tax, separate from the tax revenue itself.
Analysing a price ceiling or floor
Rent control, minimum wage laws and agricultural price supports all create a gap between the price that would clear the market and the price actually paid or received, producing a deadweight loss in the same triangular shape.
Comparing the size of different interventions
Because deadweight loss grows with the square of how far a policy pushes the market from equilibrium, comparing the triangle size for a small versus a large price distortion shows why efficiency costs escalate quickly with the size of the intervention.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How deadweight loss changes as the quantity falls further from equilibrium
A fixed equilibrium of 1,000 units and $5 price gap, across a range of actual quantities traded.
| Actual quantity traded | Deadweight loss |
|---|---|
| 0 units | $2,500.00 |
| 100 units | $2,250.00 |
| 200 units | $2,000.00 |
| 300 units | $1,750.00 |
| 500 units | $1,250.00 |
| 800 units | $500.00 |
How deadweight loss changes with the size of the price gap
A fixed 200-unit quantity reduction, across a range of price gaps.
| Price gap | Deadweight loss |
|---|---|
| $1.00 | $100.00 |
| $2.00 | $200.00 |
| $5.00 | $500.00 |
| $10.00 | $1,000.00 |
| $15.00 | $1,500.00 |
| $20.00 | $2,000.00 |
Questions
Is this an exact measure of deadweight loss?
No. It is a simplified triangle-area model that assumes demand and supply are roughly straight lines near the equilibrium point. Real demand and supply curves can bend, so this is a reasonable educational approximation, not a precise forecast for any specific market.
What causes deadweight loss?
Anything that stops a market from reaching its free equilibrium quantity, such as a tax, subsidy, price ceiling, price floor or quota, typically creates deadweight loss, because some mutually beneficial trades no longer happen.
Is deadweight loss the same as tax revenue?
No. Tax revenue is money that moves from buyers and sellers to the government, so it is not itself a loss to society as a whole. Deadweight loss is the separate, genuine loss from trades that stopped happening entirely because of the tax.
Why does the price gap matter as much as the quantity change?
The triangle area depends on both dimensions: how far the quantity fell, and how large a gap opened up between what buyers pay and sellers receive at that lower quantity. A distortion that barely changes quantity but creates a huge price gap can still produce a sizeable deadweight loss.
To work out the rate used to discount future values in a related present-value calculation, see the discount rate calculator.