Final answer:
When a market is not allowed to adjust to the equilibrium price and quantity traded, social surplus will be lost. Consumer surplus is the difference between what consumers are willing to pay and the market equilibrium price, while producer surplus is the difference between what producers are willing to sell for and the market equilibrium price. The total surplus, which is the sum of consumer and producer surplus, is maximized at the equilibrium quantity and price.
Step-by-step explanation:
When a market is not allowed to adjust to the equilibrium price and quantity traded, some social surplus will be lost.
Consumer surplus is the gap between the price that consumers are willing to pay, based on their preferences, and the market equilibrium price. Producer surplus is the gap between the price for which producers are willing to sell a product, based on their costs, and the market equilibrium price. Social surplus is the sum of consumer surplus and producer surplus. Total surplus is larger at the equilibrium quantity and price than it will be at any other quantity and price. Deadweight loss is loss in total surplus that occurs when the economy produces at an inefficient quantity.
As a result, two changes occur. First, an inefficient outcome occurs and the total surplus of society is reduced. The loss in social surplus that occurs when the economy produces at an inefficient quantity is called deadweight loss. In a very real sense, it is like money thrown away that benefits no one.