The diagram below shows the demand and supply curves in a perfectly competitive market.
FIGURE 12-5
-Refer to Figure 12-5. If output in this market were Q1, the total loss in economic surplus relative to the competitive equilibrium would be illustrated by area

Question

The diagram below shows the demand and supply curves in a perfectly competitive market.
  FIGURE 12-5
-Refer to Figure 12-5. If output in this market were Q1, the total loss in economic surplus relative to the competitive equilibrium would be illustrated by area

Quizplus · Accepted Answer

The competitive equilibrium output is given by Q*, where the demand and supply curves intersect. However, the actual output in this market is Q1, which is less than the competitive equilibrium output. As a result, there is a deadweight loss in economic surplus, which is the difference between the total economic surplus at Q* and the total economic surplus at Q1. This loss is illustrated by the combined area of 1 and 2, which is represented by answer choice D.

The Diagram Below Shows the Demand and Supply Curves in a Perfectly