Deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic

efficiency that can occur when equilibrium for a good or service is not Pareto optimal.Causes of
deadweight loss can include monopoly pricing (in the case of artificial scarcity), externalities, taxes or
subsidies, and binding price ceilings or floors (including minimum wages). The term deadweight loss may
also be referred to as the "excess burden" of monopoly or taxation.

In simple economic terms, deadweight loss is a reduction in net economic benefits resulting
from an inefficient allocation of resources. The concept of deadweight loss is common when
assessing government interventions, such as the introduction of a tax or a subsidy, or the
internalisation of an externality. For example, the blue Harberger triangle in Figure 1 illustrates
the deadweight loss occurring when the market equilibrium is not Pareto optimal due to the
existence of a negative externality

Concept of Deadweight Loss of Tax:

(from Public Finance by Harvey Rosen)