Which term refers to the lost net benefit to society due to market inefficiencies, often resulting from policies like excise taxes?

Deadweight loss refers to the lost net benefit to society that occurs when market transactions are not efficient, typically due to factors such as taxes or subsidies that distort the natural equilibrium of supply and demand. When a policy, like an excise tax, is implemented, the quantity of goods traded in the market decreases from what it would be in a competitive market. This reduction in trade leads to a loss of consumer and producer surplus, which is represented by deadweight loss, illustrating the inefficiencies caused by the tax.

In contrast, market failure is a broader term that encompasses any situation where the market does not allocate resources efficiently on its own, which can include deadweight loss as one of its components. A negative externality refers to a situation where a third party is adversely affected by a market transaction, leading to a social cost that isn’t reflected in the market price, but does not directly define the loss of net benefit due to inefficiency. Equilibrium deficit is not a standard economic term and does not convey the concept of loss from market inefficiencies. Thus, deadweight loss precisely describes the concept of lost benefits due to market inefficiencies driven by certain policies.