Final answer:
Deadweight loss is a reduction in social surplus due to a market not producing at an efficient quantity, like when price controls result in a market not reaching equilibrium.
Step-by-step explanation:
Deadweight loss refers to the loss in social surplus that occurs when a market does not operate at maximum efficiency, often due to disruptions such as price controls, taxes, or monopolies. This inefficiency causes a reduction in the total surplus, which is made up of consumer surplus and producer surplus. In the presence of deadweight loss, both consumer and producer surplus are not maximized. An example of deadweight loss can be seen when price controls prevent market equilibrium, where supply equals demand, leading to either excess supply or excess demand. The area labeled U + W in a supply and demand diagram represents the deadweight loss, indicating the amount of social surplus not realized because the market is not in equilibrium.