Final answer:
A deadweight loss occurs when the quantity of an output produced is less or greater than the competitive equilibrium quantity, leading to an inefficient outcome and reduction in total surplus of society. This can happen when there are market inefficiencies preventing consumers and producers from engaging in transactions or when resources are allocated to less valuable goods.
Step-by-step explanation:
A deadweight loss occurs when the quantity of an output produced is either less or greater than the competitive equilibrium quantity. In both cases, the marginal benefit of the output is not equal to the marginal cost, resulting in an inefficient outcome and a reduction in the total surplus of society.
For example, if the quantity produced is less than the competitive equilibrium quantity, consumers and producers may be willing to engage in more transactions, but they are prevented from doing so due to market inefficiencies. This leads to a deadweight loss.
Similarly, if the quantity produced is greater than the competitive equilibrium quantity, resources may be allocated to the production of goods that have lower value to society, resulting in a deadweight loss.