CHAPTER • The Analysis of Competitive Markets 321 who have stayed in the market but are producing less Therefore, the total change in producer surplus is −A − C Producers clearly lose as a result of price controls Deadweight Loss: Is the loss to producers from price controls offset by the gain to consumers? No As Figure 9.2 shows, price controls result in a net loss of total surplus, which we call a deadweight loss Recall that the change in consumer surplus is A − B and that the change in producer surplus is −A − C The total change in surplus is therefore (A − B) ϩ (−A − C) ϭ −B − C We thus have a deadweight loss, which is given by the two triangles B and C in Figure 9.2 This deadweight loss is an inefficiency caused by price controls; the loss in producer surplus exceeds the gain in consumer surplus • deadweight loss Net loss of total (consumer plus producer) surplus If politicians value consumer surplus more than producer surplus, this deadweight loss from price controls may not carry much political weight However, if the demand curve is very inelastic, price controls can result in a net loss of consumer surplus, as Figure 9.3 shows In that figure, triangle B, which measures the loss to consumers who have been rationed out of the market, is larger than rectangle A, which measures the gain to consumers able to buy the good Here, because consumers value the good highly, those who are rationed out suffer a large loss The demand for gasoline is very inelastic in the short run (but much more elastic in the long run) During the summer of 1979, gasoline shortages resulted from oil price controls that prevented domestic gasoline prices from increasing to rising world levels Consumers spent hours waiting in line to buy gasoline This was a good example of price controls making consumers—the group whom the policy was presumably intended to protect—worse off D Price S B C Pmax Q1 EFFECT OF PRICE CONTROLS WHEN DEMAND IS INELASTIC If demand is sufficiently inelastic, triangle B can be larger than rectangle A In this case, consumers suffer a net loss from price controls P0 A F IGURE 9.3 Q2 Quantity