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

Quizplus · Accepted Answer

The loss in producer surplus relative to the competitive equilibrium would be equal to the area between the supply curve at Q₃ and the price line. This is represented by area 3 in the diagram. Therefore, the answer is E, which corresponds to area 3.

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