Welfare Loss Calculation (HL Only)

This topic explains welfare loss (deadweight loss) that arises when market output is not allocatively efficient because marginal social benefit (MSB) does not equal marginal social cost (MSC). At Higher Level students must be able to calculate the triangular welfare loss from a diagram or data table and understand why overproduction (negative production externality) or underconsumption (positive consumption externality) creates this loss. Calculations use the triangle area formula and results are treated as simplified estimates because measuring MSB and MSC precisely is difficult.