So we can see the quantity supplied, I'm sorry, quantity demanded exceeds

quantity supplied, and again, we have a shortage or excess demand.

And in this particular case, we have excess demand of exactly 15 units.

30 minus 15 is 15.

What about the total surplus that's generated in the economy?

At equilibrium, the total surplus was this whole triangle here.

But now we have the government intervene, and the amount that's

exchanged in the market is the minimum of quantity supplied and quantity demanded.

The amount that exchange in the market is going to be limited to 15 units.

And so what we're losing is this triangle here.

This triangle here is our deadweight loss.

Let's go ahead and calculate deadweight loss.

Again, an area of a triangle is height times base divided by two.

It's easy to see what the base is, we were producing 20 units,

now we're producing 15 units, so the base here is equal to 5.

What about the height?

The height is the difference between this price of 40 and whatever number this is.

So we have to go ahead and calculate this number.

The way we do that is by using our equation of the demand curve.

We take this quantity of 15, and we plug it into our demand curve.

So we get the marginal benefit at a quantity of 15

units is whatever the demand curve tells us.

70 minus the quantity of 15, and

we get that the marginal benefit is $55.

So this number here is $55.

Now we can calculate the height.

The height is 55, I'm sorry 55 minus 40, which is equal to 15,

and we have everything that we need to calculate deadweight loss.

Again, a deadweight loss is the height.

So that's 15 times the base, which is five divided by two,

and that in dollars is equal to our deadweight loss.

What is the meaning of the deadweight loss?

We calculated total surplus at the equilibrium, and

we found that it's equal to $600.

We can compare that to the total surplus at the price ceiling of $40,

and what we will find is that it's equal to

the original $600 minus our deadweight loss.

Okay, so that's the meaning of the deadweight loss.

It's the shrinking of the total sub less by the amount of the deadweight loss,

due to the fact that the government stepped in and set a price ceiling.