Final answer:
It is true that a deadweight loss arises from a wedge between the price paid by consumers and the price received by producers, leading to an inefficient market outcome and reduced social surplus.
Step-by-step explanation:
A deadweight loss arises when there is a difference, or wedge, between the price paid by consumers and the price received by producers. This is true.
Deadweight loss is a concept in economics that describes the loss in total surplus that occurs when the economy is not producing at an efficient quantity. When this happens, the social surplus, which includes both consumer and producer surplus, is reduced, leading to an inefficient market outcome.
Consumer surplus is the benefit that consumers receive when they pay less than what they are willing to pay for a product, while producer surplus is the benefit producers receive when they sell a product for more than the cost of production.
When there is a deadweight loss, such as from price controls, it blocks some suppliers and demanders from making transactions they would otherwise agree on, thereby reducing the overall social surplus.
The area representing the deadweight loss on a standard supply and demand graph is the part where supply and demand are out of equilibrium due to a price control.