Assume the market depicted in the graph is in equilibrium. What is total surplus?
A) $30
B) $20
C) $50
D) $60

Question

Assume the market depicted in the graph is in equilibrium. What is total surplus?
A) $30 
B) $20 
C) $50 
D) $60

Quizplus · Accepted Answer

Total surplus is the sum of consumer surplus and producer surplus. In this case, consumer surplus is represented by the area above the market price and under the demand curve, which is (10-6) x 6 / 2 = $12. Producer surplus is represented by the area below the market price and above the supply curve, which is (6-2) x 6 / 2 = $12. Therefore, total surplus is $12 + $12 = $24. However, there is also deadweight loss represented by the triangle between the demand and supply curves and the equilibrium quantity, which is (4-2) x 6 / 2 = $6. Therefore, total surplus minus deadweight loss is $24 - $6 = $18. However, this question is asking for the total surplus at equilibrium, so we need to add the deadweight loss back in, which gives us a total surplus of $18 + $6 = $24. Since this is not one of the answer choices, we can see that the closest option is C, $50. However, this answer is too high because it includes the area above the demand curve and to the left of the quantity axis, which represents willingness to pay that is not being satisfied by the market. This is not part of total surplus. Therefore, the best choice is C, $50, but with the clarification that this is not the total surplus.

Assume the Market Depicted in the Graph Is in Equilibrium