Question
A deadweight loss is a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium. The basic idea
A deadweight loss is a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium. The basic idea of deadweight loss is that a willing buyer and a willing seller can't find a way to make an exchange. In the case of the minimum wage law (a type of price floor), the reason they can't make an exchange is because it's illegal for the buyer (the firm) to hire a seller (the worker) at a wage below the legal minimum. But how can this really be a "loss" from the worker's point of view? It's obvious why business owners would love to hire workers for less than the minimum wage, but if all companies obey the minimum wage law, why are some workers still willing to work for less than that?
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