<p>The deadweight loss measures inefficiency. If point E is your initial equilibrium point (efficient), any government intervention that moves you away from C is inefficient and it created a DWL. The triangle shows you the amount of inefficiency at the new quantity in the market (lower than before) and the new price (higher than before).</p>

CC BY-SA 3.0
2016-09-24T18:01:55.443Z
2016-09-24T18:01:55.443Z
MCF
<p>I suspect your chart could look more like this:</p>

<p><a href="https://i.sstatic.net/A5hiU.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/A5hiU.png" alt="enter image description here"></a></p>

<p>Initially with the price and quantity at E, the combined surplus is the triangle to the left (between the orange line and the lower green line to the left of E, i.e. the pink and grey areas).</p>

<p>But with for example a tax, the new equilibrium has consumers paying the price at C, so the new combined surplus is still between the orange line and the lower green line, but only to the left of C (i.e. the pink area).</p>

<p>So the deadweight loss is the triangle CEF (i.e. the grey area) which is the loss in surplus associated with the reduced quantity.  If all three lines are straight, and the green lines are parallel then this is the same area as the triangle CDE, but not necessarily otherwise.    </p>

CC BY-SA 3.0
2016-09-23T03:32:05.953Z
I don't quite understand the term **combined surplus** and how is that value equal to the grey and pink area? There is no mention of the minimum price the seller would have sold his product for quantity E, so how can we compute the surplus anyhow at E (Or may be that I don't understand combined surplus that's why not able to apply myself here)?
Ishan Sharma
CC BY-SA 3.0
2016-09-23T09:39:00.623Z
The combined surplus is the consumer surplus plus the producer surplus (plus, if there is a tax, the government surplus). Originally the consumer surplus is the amount of consumer value corresponding to the quantity received (below the orange demand curve and to the left of E) less the amount paid (the rectangle from the origin to E), while the producer surplus is the amount received (the rectangle from the origin to E) less the producer cost corresponding to the quantity (below the green supply curve and to the left of E).
Henry
CC BY-SA 3.0
2016-09-22T19:38:20.587Z
2016-09-22T19:38:20.587Z
Henry
<p>I am familiar with the concept of deadweight loss but I can't deduce the significance of the triangular region we consider deadweight loss as.<a href="https://i.sstatic.net/LufM5.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/LufM5.png" alt="Demand Supply Curve"></a></p>

<p>I mean what's the issue with taking the deadweight loss as the area under ABCD instead of CDE or for that matter CDF (F being the mid point of DE) or does that particular area represents some quantity from economic perspective that I might be missing out on?</p>

CC BY-SA 3.0
2016-09-22T18:18:11.450Z
Which is the old equilibrium, and which the new?
Henry
CC BY-SA 3.0
2016-09-22T18:24:30.840Z
Supply curve passing through E is the old one and the one passing through C is the new one. I guess you could have figured that out by the shaded area mentioned as deadweight loss (if it had been the other triangle, the old and new would have been the opposite of what I'd just told you).. I might be wrong though. And how is that information related to answering my question?
Ishan Sharma
CC BY-SA 3.0
2016-09-22T18:43:45.463Z
Interesting drawing. $A$ and $B$ seem to have no significance whatsoever. And most definitions of deadweight loss would mirror the triangle to the midpoint of $CE$. That way it makes way more sense.
Giskard
<microeconomics><supply-and-demand>
What's the significance of the triangular region for calculating the deadweight loss?
Ishan Sharma
# What's the significance of the triangular region for calculating the deadweight loss?

(Asked by: username_0 on 2016-09-22)

I am familiar with the concept of deadweight loss but I can't deduce the significance of the triangular region we consider deadweight loss as.[![Demand Supply Curve](https://i.sstatic.net/LufM5.png)](https://i.sstatic.net/LufM5.png)

I mean what's the issue with taking the deadweight loss as the area under ABCD instead of CDE or for that matter CDF (F being the mid point of DE) or does that particular area represents some quantity from economic perspective that I might be missing out on?

**Tags:** microeconomics, supply-and-demand

> **Comments:**
> **username_1**: Which is the old equilibrium, and which the new?  
> **username_0**: Supply curve passing through E is the old one and the one passing through C is the new one. I guess you could have figured that out by the shaded area mentioned as deadweight loss (if it had been the other triangle, the old and new would have been the opposite of what I'd just told you).. I might be wrong though. And how is that information related to answering my question?  
> **username_2**: Interesting drawing. $A$ and $B$ seem to have no significance whatsoever. And most definitions of deadweight loss would mirror the triangle to the midpoint of $CE$. That way it makes way more sense.  

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## 2 answers

### Answer by username_1 on 2016-09-22. Score: 3 | Accepted answer

I suspect your chart could look more like this:

[![enter image description here](https://i.sstatic.net/A5hiU.png)](https://i.sstatic.net/A5hiU.png)

Initially with the price and quantity at E, the combined surplus is the triangle to the left (between the orange line and the lower green line to the left of E, i.e. the pink and grey areas).

But with for example a tax, the new equilibrium has consumers paying the price at C, so the new combined surplus is still between the orange line and the lower green line, but only to the left of C (i.e. the pink area).

So the deadweight loss is the triangle CEF (i.e. the grey area) which is the loss in surplus associated with the reduced quantity. If all three lines are straight, and the green lines are parallel then this is the same area as the triangle CDE, but not necessarily otherwise.

> **Comments:**
> **username_0**: I don't quite understand the term **combined surplus** and how is that value equal to the grey and pink area? There is no mention of the minimum price the seller would have sold his product for quantity E, so how can we compute the surplus anyhow at E (Or may be that I don't understand combined surplus that's why not able to apply myself here)?  
> **username_1**: The combined surplus is the consumer surplus plus the producer surplus (plus, if there is a tax, the government surplus). Originally the consumer surplus is the amount of consumer value corresponding to the quantity received (below the orange demand curve and to the left of E) less the amount paid (the rectangle from the origin to E), while the producer surplus is the amount received (the rectangle from the origin to E) less the producer cost corresponding to the quantity (below the green supply curve and to the left of E).  

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### Answer by username_3 on 2016-09-24. Score: 0

The deadweight loss measures inefficiency. If point E is your initial equilibrium point (efficient), any government intervention that moves you away from C is inefficient and it created a DWL. The triangle shows you the amount of inefficiency at the new quantity in the market (lower than before) and the new price (higher than before).


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