Moving beyond Harberger’s Triangle to present the inefficiency from misallocated market transactions under price controls

Binding price controls (i.e., price floors and ceilings) hinder the efficiency of markets by eliminating mutually agreeable transactions, which are often graphically illustrated in principles of economics textbooks using Harberger’s Triangle. However, price controls create another form of inefficiency by eliminating the incentives for the welfare-maximizing transactions among the remaining transactions. The deadweight loss from this misallocation is often orders of magnitude larger than the deadweight loss from eliminating mutually agreeable transactions alone and is largely ignored by most economics textbooks. In this article, the author presents the historical graphical expositions of inefficiency from misallocation and develops a simple approach to graphically illustrate and quantify the deadweight loss’s upper bound under price controls.