Figure 7-18

-Refer to Figure 7-18.At the equilibrium price,total surplus is
A) $480.
B) $640.
C) $1,120.
D) $1,280.

Question

Figure 7-18
 
-Refer to Figure 7-18.At the equilibrium price,total surplus is
A) $480. 
B) $640. 
C) $1,120. 
D) $1,280.

Quizplus · Accepted Answer

At the equilibrium price, total surplus is equal to the area of the triangle formed by the demand curve, supply curve, and quantity traded. This triangle has a base of 16 units (from a price of $40 to $56) and a height of $70 (the difference between the equilibrium price of $80 and the minimum supply price of $10). Therefore, the total surplus is 1/2 x 16 units x $70 = $560. However, $440 of this total surplus accrues to producers (the area below the equilibrium price but above the supply curve), leaving $120 of surplus for consumers (the area above the equilibrium price but below the demand curve). Therefore, the correct answer is C, $1,120, which is the total surplus ($560) plus the amount consumers receive ($560 minus the amount producers receive, $440).

Figure 7-18 -Refer to Figure 7-18.At the Equilibrium Price,total Surplus Is