The diagram below shows the demand and supply curves in a perfectly competitive market. FIGURE 12- 5
-Refer to Figure 12- 5. In the free- market equilibrium, producer surplus is shown by the area
A) P1P2E.
B) 1 +2.
C) 1 + 2 + 3 + 4.
D) P3P2E.
E) P1P3E.

Question

The diagram below shows the demand and supply curves in a perfectly competitive market.  FIGURE 12- 5
-Refer to Figure 12- 5. In the free- market equilibrium, producer surplus is shown by the area
A) P1P2E. 
B) 1 +2. 
C) 1 + 2 + 3 + 4. 
D) P3P2E. 
E) P1P3E.

Quizplus · Accepted Answer

Producer surplus is the area above the supply curve and below the market price. In the free-market equilibrium, producer surplus is shown by the area P1P2E, which is above the supply curve but below the equilibrium price. Therefore, the correct answer is A.

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