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Table of Content
The deadweight loss calculator assists in evaluating the price ceiling and price floor in the marketplace. The price ceiling and price floor are essential to control the economy to avoid capitalization or monopoly.
The deadweight loss is a market imbalance or inefficiency of the supply and demand.
In economics, the deadweight loss occurs due to the irrelevant allocation of resources. It is the result of out-of-control demand and supply covariance.
The deadweight loss calculator identifies the irrational relationship between supply and demand which makes the understanding of this financial term more clear.
You need to calculate deadweight loss to know the exact price ceiling and the price floor.
Let us discuss why!
The price ceiling is the mandated maximum profit a seller is allowed to charge for a product or service. The cross-price ceiling calculator indicates what is the price ceiling of the consumer products.
This is applied to stabilize the unnecessary price increase of energy and food items, so these items do not become unaffordable to consumers.
The price floor is applied to enforce the minimum wage rate and living wage laws. The price floor is the minimum legal rate for hiring services, labor, or financial capital. The deadweight loss calculator provides us with the estimation of the minimum wage rate and labor charges.
The major causes of the deadweight loss are:
The dead weight loss formula is:
DWL = ½[(Pc – Pp)(Qe – Qt)]
DWL = Deadweight Loss
Pp = Original Price
Pc = New Price
Qe = Original Quantity
Qt = New Quantity
The deadweight loss calculator
Let’s suppose the original price of the 3 items of product “A” is $ 20 and the new price is $ 50. Then what is the deadweight loss burden on consumers?
Original Price = $ 20
New Price = $ 50
Original Quantity = 3 items
New Quantity = 2 items
The deadweight loss equation is:
DWL =½[(Pc – Pp)(Qe – Qt)]
DWL = ½[(50- 20)(3 – 2)]
DWL = ½
DWL = $ 15
To calculate the deadweight loss on graph follow the steps below:
First, you need to determine the Price (P1) and Quantity (Q1) to find the deadweight loss on graph.
The second step derives the value of deadweight loss on graph by applying the formula in which 0.5 is multiplied by a difference
Now spot where is deadweight loss on a graph and it is between the new price and old price (P2-P1), new quantity, and old quantity (Q1-Q2) in the deadweight loss graph.
To calculate deadweight loss with the dead weight calculator, you need the following input values:
Let’s find out how!
It cannot be a negative value. But, it can be zero. This occurs when the demand is perfectly elastic or when the supply is perfectly inelastic.
From the source of Investopedia.com: Deadweight loss
From the source of Wallstreetmojo.com: DWL, Monopoly