Price Floor Deadweight Loss. The equation PMC is used to calculate the deadweight loss in a market. Inefficiency of Price Floors.
In the absence of externalities both the price floor and price ceiling cause deadweight loss since they change the market quantity from what would occur in equilibrium. In other words any time a regulation is put into place that moves the market away from equilibrium beneficial transactions that would have occured can no longer take place. This is the minimum loss to society associated with a price floor.
When supply and demand are out of equilibrium creating a market inefficiency a deadweight loss is created.
Taxes These financial charges are made by the government and are unavoidable. This is accompanied by a transfer of surplus from one player to another. Taxation and dead weight loss. In effect the price floor causes the area H to be transferred from consumer to producer surplus but also causes a deadweight loss of J K.
