Identify the market equilibrium without the tax, subsidy, price floor, or price ceiling
Find the quantity traded in the distorted market
Calculate the quantity reduction caused by the distortion
Determine the per-unit wedge between buyers’ price and sellers’ price, or between the market price and the efficient price
Use the formula: Deadweight Loss = 1/2 × quantity reduction × per-unit wedge
For a tax, use: Deadweight Loss = 1/2 × tax per unit × reduction in quantity
For a subsidy, use: Deadweight Loss = 1/2 × subsidy per unit × increase in quantity
For a price ceiling or price floor, use the area of the triangle between supply and demand over the lost trades
Read the triangle’s base as the change in quantity
Read the triangle’s height as the price difference created by the distortion
Multiply 1/2 × base × height to get deadweight loss
Check that all quantities and prices use the same units before calculating