Q. The two deadweight triangles are the Production distortion and Consumption distortion losses. It is simple to understand why the Consumption distortion constitutes a loss for society. After all it raises the prices of goods to consumers, and even causes some consumers to lost out of the market altogether. It seems paradoxical that the Production distortion is taken an equivalent burden on society. Finally, in this case, profits increase, and additional production (with its associated employment) comes on line. This could seem to be an offset rather than an addition to the burden or loss borne by society. Illustrate why the Production distortion is indeed a loss to society, and what is wrong with the logic that tends to the apparent paradox.

Answer: The Production distortion is a defeat to society because it constitutes a loss to consumer surplus which isn't recouped by any other group in society. The real triangle here represents an inefficient shift of society's resources to produce goods which it could not sell profitably at world prices. Ever since with full employment assumed these resources were formerly used to produce export goods which could compete valuably the net result is a loss in real income to the country.