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, the loss in total economic surplus relative to the competitive equilibrium would be illustrated by area
A) 2.
B) 1.
C) 4.
D) 3 + 4.
E) 3.

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, the loss in total economic surplus relative to the competitive equilibrium would be illustrated by area
A) 2. 
B) 1. 
C) 4. 
D) 3 + 4. 
E) 3.

Quizplus · Accepted Answer

The competitive equilibrium output is Q2 where the demand and supply curves intersect, and the price is P2. If output were Q3, the price would decrease to P3, causing a loss in producer surplus (area 3) and consumer surplus (area 4). The total economic surplus loss relative to the competitive equilibrium would be the sum of area 3 and area 4, which is represented by choice D.

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