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 Q3, and the price was still equal to its free-market level, the loss in producer surplus relative to the competitive equilibrium would be illustrated by area
A) 1.
B) 2.
C) 3.
D) 4.
E) 3 + 4.

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 Q3, and the price was still equal to its free-market level, the loss in producer surplus relative to the competitive equilibrium would be illustrated by area
A) 1. 
B) 2. 
C) 3. 
D) 4. 
E) 3 + 4.

Quizplus · Accepted Answer

To find the loss in producer surplus relative to the competitive equilibrium, we need to compare the area below the supply curve at Q3 to the area below the supply curve at Q2 (the competitive equilibrium output level). The difference between these two areas is illustrated by area 3, which represents the decrease in producer surplus due to the lower output level. Therefore, the correct answer is C.

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