I have a doubt in the info provided on the page mentioned in Subject line and would be grateful if someone would help me clarify it.
Here is the link: https://web.archive.org/web/20150512131010/https://www.boundless.com/economics/textbooks/boundless-economics-textbook/introducing-supply-and-demand-3/government-intervention-and-disequilibrium-49/introduction-to-deadweight-loss-187-12285/
Following are the Definitions given on the page
Deadweight loss: It is the decrease in economic efficiency that occurs when a good or service is
not priced at its
pareto optimal level.
Pareto optimal describes a situation in which the profit of one party cannot be increased without reducing the profit of another.
Now, here is where the doubt rises… Supply-Demand Curve can be divided in 3 parts (so to speak)
- Equilibrium Price Point
- Price Points below Equilibrium Price
- Price Points above Equilibrium Price
and Paraeto Optimal is present everywhere i.e. below equilibrium point, at that point, and above it. To explain further, when we decrease/increase Price Ceiling, the change in profit of consumer will occur at the cost of producer’s. Similarly, when we decrease/increase Price Floors, profit of consumer and producer will follow Paraeto Optimal. Similar is the case at the Equilibrium Price Point.
So, this brings me back to wondering whether the definition of Deadweight Loss given on this page is correct.
Please help and Thanks in advance.