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
A) P1P3E.
B) 1 + 2 + 3 + 4.
C) 1.
D) 2.
E) 1 + 2.

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
A) P1P3E. 
B) 1 + 2 + 3 + 4. 
C) 1. 
D) 2. 
E) 1 + 2.

Quizplus · Accepted Answer

The total loss in economic surplus relative to the competitive equilibrium is represented by the deadweight loss, which is the area between the demand and supply curves from Q₁ to the competitive equilibrium quantity. This is typically shown as the sum of areas 1 and 2.

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