Unit 2.8 · Market Failure: Externalities and Common Pool Resources
Welfare Loss Calculation (HL Only)
AO4HL
Syllabus Requirement
HL students must calculate the welfare loss (deadweight loss) from externality diagrams.
Assessment Objectives
AO4Use of Appropriate Skills
HLThis topic is assessed at Higher Level only.
Summary
Welfare loss, also known as deadweight loss, refers to the decrease in total economic welfare that happens when market outcomes are not allocatively efficient. This topic is important for understanding how externalities affect market efficiency and how to calculate the welfare loss associated with these inefficiencies.