Details

The area highlighted as deadweight loss illustrates the loss in consumer and producer surplus of this market due to the quantity restriction. This loss comes from transactions that can no longer occur with the quantity restriction. Notice from the example output that as the quota decreases and grows farther from the equilibrium quantity, both the price of the good and deadweight loss increase. This increase in deadweight loss illustrates the inefficiency that comes from this form of government intervention. It follows that as the quota becomes more severe, the market becomes more inefficient.