What term refers to the reduction in economic surplus due to a market not being in competitive equilibrium?

The term that refers to the reduction in economic surplus due to a market not being in competitive equilibrium is deadweight loss. Deadweight loss occurs when the quantity of a good or service traded in a market is not at the optimal level, often resulting from factors such as taxes, price controls, or monopolistic practices that prevent the market from reaching an equilibrium where supply equals demand.

When a market is in competitive equilibrium, the economic surplus, which is the sum of consumer and producer surplus, is maximized. However, when the market operates inefficiently, this surplus diminishes, resulting in deadweight loss. This concept is crucial in understanding how deviations from perfect competition can lead to inefficiencies and lost welfare in the economy. Thus, recognizing deadweight loss is essential for evaluating the performance of markets and policy impacts on economic efficiency.