Distortions (economics) This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Distortions_(economics)".
Distortions in economics refers to conditions that in theory create economic inefficiency (a systematic loss of economic welfare). Examples include rent seeking and conditions that result in a deviation of the marginal rate of substitution in consumption and the marginal rate of transformation in production between goods. commonly measured by the demand price and marginal cost. Such a deviation may result from unregulated monopoly, tariffs, import quotas, uncorrected externalities, or different tax rates on goods. Each of each these may lead to a net loss in consumer surplus (Srinivasan, 1987; Slemrod, 1990). By contrast, in the idealized conditions of perfect competition, there are no such distortions at market equilibrium of supply and demand.
