deadweight loss: a standalone construct

The idea traces to the French engineer Jules Dupuit, whose 1844 study of the utility of public works used the demand curve to measure the benefit that vanishes when a price or toll pushes exchange below the level people would freely have chosen. In economics, deadweight loss names the total surplus, meaning the combined gain to buyers and sellers, that simply disappears when a market settles away from its competitive equilibrium, so that trades both sides would have valued never take place. Harold Hotelling (1938) set the concept on a formal welfare footing for taxes and utility pricing, and Arnold Harberger (1954) made it measurable, estimating the loss from monopoly as the area of a triangle, now called the Harberger triangle, between the demand curve and the reduced, restricted output. Common sources of the loss include a tax, a subsidy, a price ceiling or floor, a monopoly that holds output below the competitive quantity, and an externality that a private price ignores. What makes deadweight loss a landmark is that it places a single money figure on the inefficiency of an outcome, the value of mutually beneficial trades forgone, separately from who gains or loses under the policy that caused it.[1][2][3]

Unit

Lost total surplus expressed in money, the value of the mutually beneficial trades that do not occur

Recovery means

In principle recovered by removing the distortion, for example repealing the tax or ending the output restriction, so exchange returns to the competitive quantity

Measured by

Estimated as the area between the demand and supply curves over the trades forgone (the Harberger triangle), often approximated as one-half times the price distortion times the resulting change in quantity