Figure 4-6
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P₁ and a quantity of Q₁. Now suppose producers decide to cut output to Q₂ in order to raise the price to P₂.
-Refer to Figure 4-6.What area represents consumer surplus at the equilibrium price of P₁?

Question

Figure 4-6
  Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P₁ and a quantity of Q₁. Now suppose producers decide to cut output to Q₂ in order to raise the price to P₂.
-Refer to Figure 4-6.What area represents consumer surplus at the equilibrium price of P₁?

Quizplus · Accepted Answer

Consumer surplus at the equilibrium price of P₁ is represented by the area A + B + C. This area represents the difference between the maximum price consumers are willing to pay and the equilibrium price they actually pay. Therefore, if producers cut output to raise the price to P₂, consumer surplus will decrease as some consumers may be willing to pay the higher price, but not all. Areas D and E represent producer surplus, while area A represents deadweight loss if producers cut output to Q₂.

Figure 4-6 Figure 4-6 Shows the Market for Granola. the Granola