Use the following to answer question:
-(Figure: The Gains from Trade) Look at the figure The Gains from Trade.What is the total surplus in this market when the demand curve is D₁and the market is in equilibrium?

Question

Use the following to answer question:

-(Figure: The Gains from Trade) Look at the figure The Gains from Trade.What is the total surplus in this market when the demand curve is D₁and the market is in equilibrium?

Quizplus · Accepted Answer

To find the total surplus, we need to calculate the area of consumer surplus (CS) and producer surplus (PS). CS is the area above the price and below the demand curve, while PS is the area below the price and above the supply curve. At equilibrium, the price is $12.50 and the quantity traded is 5 units. The CS is (1/2) x (10-12.50) x 5 = $-6.25 (since the demand curve is below the price) and the PS is (1/2) x (12.50-5) x 5 = $31.25. Therefore, the total surplus is $-6.25 + $31.25 = $25.00. Since CS is negative, we should only consider the PS when answering the question, which is $31.25.

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