Figure: Basic Supply and Demand
M
In a free market, as illustrated in the diagram, total gains from trade are greatest when:

Question

Figure: Basic Supply and Demand
M 
In a free market, as illustrated in the diagram, total gains from trade are greatest when:

Quizplus · Accepted Answer

At the intersection of the supply and demand curves, 50 units will be sold at a price of $3, which is the point of equilibrium in a free market. At this point, the gains from trade are greatest because the quantity demanded by consumers (50) equals the quantity supplied by producers (50), maximizing both consumer and producer surplus. Thus, choice D is the best answer.