Deadweight Loss Calculator

Economics education tool. This calculator is illustrative for learning microeconomics. Its results are not financial advice, tax advice, or public policy recommendations.

What is deadweight loss?

Deadweight loss (often drawn as the Harberger triangle) is the difference between total surplus (consumer + producer) at the efficient quantity and total surplus at the actual quantity. When a tax raises the price buyers pay above the price sellers receive, some mutually beneficial transactions never happen — the lost value is the deadweight loss.

Basic formula (per-unit tax): DWL = ½ × tax rate × (Q₀ − Q₁) — the area of a triangle with height = tax rate and base = quantity reduction.

Model note. Calculations use a linear approximation (straight demand-supply curves and relatively small changes). Real markets have frictions, administrative costs, and actor behavior not captured by this simple model.

Calculator

Mode 1 — Deadweight loss from a per-unit tax

Example: Q₀ = 100, Q₁ = 80, $4 tax per unit → DWL = ½ × 4 × 20 = $40.

Tax rate per unit (t)

Quantity without tax (Q0)

Quantity with tax (Q1)

Quantity reduction (ΔQ = |Q0 − Q1|)

Deadweight loss (½ × t × ΔQ)

Tax revenue (t × Q1)

DWL per $1 of tax revenue

Mode 2 — Deadweight loss from price elasticity

If what is known is the demand elasticity (not the new quantity), the quantity reduction is derived from the elasticity definition: ΔQ = |ε| × (ΔP / P₀) × Q₀, then DWL = ½ × ΔP × ΔQ.

Example: price $20 → $22, Q₀ = 500, |ε| = 2 → ΔQ = 100, DWL = ½ × 2 × 100 = $100.

Initial price (P0)

Price after tax (P1)

Initial quantity (Q0)

|Demand elasticity| (ε)

Price increase (ΔP)

Quantity reduction (ΔQ)

Quantity reduction (%)

Deadweight loss (½ × ΔP × ΔQ)

Mode 3 — Subsidies and price controls

A subsidy is the mirror image of a tax: it increases quantity beyond the efficient point. DWL = ½ × subsidy per unit × (Q₁ − Q₀).

Example: $3 subsidy per unit, Q 200 → 260 → DWL = ½ × 3 × 60 = $90.

Subsidy per unit (s)

Quantity without subsidy (Q0)

Quantity with subsidy (Q1)

Quantity increase (ΔQ)

Deadweight loss (½ × s × ΔQ)

Total subsidy cost (s × Q1)

A binding maximum (ceiling) or minimum (floor) price makes the traded quantity (Q₁) fall below the equilibrium quantity (Q₀). DWL = ½ × price wedge × (Q₀ − Q₁), where the price wedge = buyer willingness to pay minus seller willingness to accept at Q₁.

Example: Q 300 → 240 with a $6 price wedge → DWL = ½ × 6 × 60 = $180.

Equilibrium quantity (Q0)

Traded quantity (Q1)

Price wedge at Q1 (wedge)

Quantity reduction (ΔQ)

Deadweight loss (½ × wedge × ΔQ)

Mode 4 — Triangle visualization & who bears the tax

The tax burden splits according to relative elasticities: the more inelastic side bears the larger share. Consumer share = ε_s / (|ε_d| + ε_s); producer share = |ε_d| / (|ε_d| + ε_s).

Example: |ε_d| = 0.5, ε_s = 1.5, $4 tax, P₀ = $20, Q₀ = 1000 → consumers bear $3 (75%), producers $1 (25%), ΔQ = 75, DWL = $150.

Equilibrium price (P0)

Equilibrium quantity (Q0)

Tax per unit (t)

|Demand elasticity| (εd)

Supply elasticity (εs)

Consumer burden share

Producer burden share

Consumer price increase

Producer price decrease

Quantity reduction (ΔQ)

Deadweight loss (½ × t × ΔQ)

Red triangle = deadweight loss. Dashed lines show the price consumers pay (top) and the price producers receive (bottom); the distance between them = the tax rate.

Frequently asked questions

What is deadweight loss?

Deadweight loss is the economic value lost when the quantity traded in the market differs from the efficient quantity, e.g. because of taxes, subsidies, or price limits. In a demand-supply diagram it takes the shape of a triangle (the Harberger triangle) with area ½ × price wedge × quantity change.

How do I compute deadweight loss from a tax?

Use DWL = ½ × per-unit tax rate × (Q0 − Q1), where Q0 is the quantity without tax and Q1 the quantity with tax. Example: Q0 = 100, Q1 = 80, $4 tax per unit → DWL = ½ × 4 × 20 = $40.

Who bears the tax burden: consumers or producers?

Both, with shares set by relative elasticities. The more inelastic side (harder to adjust quantity) bears the larger share: consumer share = εs / (|εd| + εs). Example: |εd| = 0.5, εs = 1.5, $4 tax → consumers bear $3 (75%) and producers $1 (25%).

Do subsidies also create deadweight loss?

Yes. A subsidy is the mirror image of a tax: it pushes quantity beyond the efficient point so the production cost of extra units exceeds the value consumers perceive. Subsidy DWL = ½ × subsidy per unit × (Q1 − Q0). Example: a $3 per-unit subsidy raises Q from 200 to 260 → DWL = $90.

Why do price ceilings and price floors create deadweight loss?

A binding price limit prevents some mutually beneficial transactions: the traded quantity falls below the equilibrium quantity. DWL = ½ × price wedge (at the actual quantity) × quantity reduction. Example: Q falls 300 → 240 with a $6 price wedge → DWL = $180.

Not a policy reference. This page is for learning microeconomics concepts. The numbers produced come from a simplified teaching model and do not reflect any real market.

Deadweight Loss Calculator

What is deadweight loss?

Calculator

Mode 1 — Deadweight loss from a per-unit tax

Mode 2 — Deadweight loss from price elasticity

Mode 3 — Subsidies and price controls

Mode 4 — Triangle visualization & who bears the tax

Frequently asked questions

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