Deadweight loss is the loss of total economic welfare caused by an inefficient market outcome.
In a standard supply-and-demand diagram, it is often shown as a triangle representing mutually beneficial trades that do not occur. The lost gains can arise when a tax drives a wedge between the price buyers pay and the price sellers receive, when a binding price control restricts trade, or when market power reduces output below the competitive level.
Total surplus is usually defined as consumer surplus plus producer surplus. A policy can transfer surplus from one group to another without creating deadweight loss, but it creates deadweight loss when the total gains from trade shrink. This distinction helps separate redistribution from efficiency.
Deadweight loss depends on the responsiveness of buyers and sellers, commonly described by elasticities. If demand or supply is very inelastic, a tax may reduce quantity only slightly. The term is a model-based measure of forgone surplus, not a direct invoice or a literal pile of money.