Exhibit 28-7 Refer to Exhibit 28-7.At what price is the sum of consumer surplus and producer surplus maximized?

Question

Exhibit 28-7  Refer to Exhibit 28-7.At what price is the sum of consumer surplus and producer surplus maximized?

Quizplus · Accepted Answer

The sum of consumer surplus and producer surplus is maximized where the supply and demand curves intersect at equilibrium (where quantity supplied equals quantity demanded). At this equilibrium price of $4, consumers are willing to purchase 6 units (at a price of $4, the quantity demanded is 6) and producers are willing to supply 6 units (at a price of $4, the quantity supplied is 6). This results in a consumer surplus of ($6 - $4) x 3 = $6 and producer surplus of ($4 - $2) x 6 = $12, for a total surplus of $6 + $12 = $18. At any other price, either the consumer surplus or producer surplus will be lower, resulting in a lower total surplus.