Final answer:
When producers are unable to charge consumers what they need to get in order to produce the efficient amount of a product, it leads to an inefficient outcome and a reduction in the total surplus of society. This loss in social surplus is known as deadweight loss. Additionally, when deadweight loss exists, both consumer and producer surplus can be higher.
Step-by-step explanation:
When producers are unable to charge consumers what they need to get in order to produce the efficient amount of a product, it leads to an inefficient outcome and a reduction in the total surplus of society.
This loss in social surplus is known as deadweight loss and represents the area of the triangle U + W in Figure 3.24 (a). Deadweight loss occurs when the economy produces at an inefficient quantity. It's like money thrown away that benefits no one.
Additionally, when deadweight loss exists, both consumer and producer surplus can be higher because price controls are blocking some suppliers and demanders from making transactions that they would both be willing to make.