In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-Any kind of social regulation raises the per unit cost of production of a good and hence leads to a loss of producer and consumer surplus.

Question

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
  In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-Any kind of social regulation raises the per unit cost of production of a good and hence leads to a loss of producer and consumer surplus.

Quizplus · Accepted Answer

This is because social regulation imposes additional costs on producers, which will lead to a decrease in supply and potentially higher prices for consumers. This decrease in consumer surplus and producer surplus is known as deadweight loss.

In the Following Figure, the First Panel Shows a Market