Deadweight loss, also known as excess burden or allocative inefficiency, refers to the economic loss that occurs when the equilibrium quantity and price of a good or service deviate from the efficient market equilibrium due to the imposition of taxes or other market interventions.

In the context of taxation, deadweight loss specifically refers to the loss of economic efficiency resulting from taxes that distort market outcomes. Here’s how it generally occurs:

1. **Market Equilibrium Without Taxes:** In a perfectly competitive market without taxes, the intersection of the supply and demand curves determines the equilibrium quantity and price of a good or service. This represents an efficient allocation of resources.

2. **Tax Imposition:** When a tax is imposed on either the buyers (consumers) or sellers (producers) in the market, it alters the equilibrium by raising the effective price paid by buyers or reducing the effective price received by sellers.

3. **Changes in Quantity Traded:** As a result of the tax, the quantity traded in the market typically decreases from the initial equilibrium. Buyers may reduce their quantity demanded, and sellers may reduce their quantity supplied due to the tax burden.

4. **Deadweight Loss:** The deadweight loss occurs because the tax-induced changes in quantity traded do not represent the most efficient allocation of resources. Some mutually beneficial transactions that would have occurred in the absence of the tax are prevented, leading to a loss of economic welfare.

The deadweight loss of taxation is often depicted graphically on a supply and demand diagram, where the triangle area between the supply and demand curves and the tax-induced price is the deadweight loss region.

Several factors influence the magnitude of deadweight loss, including the elasticities of supply and demand. In general, the more elastic (responsive to price changes) the supply and demand curves are, the greater the deadweight loss associated with a given tax.

Efforts to minimize deadweight loss from taxation often involve designing taxes that have minimal distortive effects on market behavior. For example, economists often advocate for taxes on goods with inelastic demand or inelastic supply, as these taxes tend to cause fewer distortions and less deadweight loss.