Consider a market that is in equilibrium with a market-clearing price.Economic surplus is shown by
A)the intersection of the supply and demand curves.
B)the area that is both below the demand curve and above the supply curve.
C)the area that is both above the demand curve and below the supply curve.
D)the area to the right of the market-clearing price and quantity.
E)the area below the supply curve up to the equilibrium quantity and below the demand curve beyond the equilibrium quantity.

Question

Quizplus · Accepted Answer

Economic surplus is the total benefit that accrues to consumers and producers in a market. It is the difference between the total value that consumers place on a good and the total cost of producing it. In graphical terms, economic surplus is the area that is both below the demand curve and above the supply curve. This represents the value that consumers place on the good, as reflected by the demand curve, minus the cost of producing it, as reflected by the supply curve. At the market-clearing price, economic surplus is maximized, and any deviation from this price will decrease total surplus. Therefore, the answer is B.

Consider a Market That Is in Equilibrium with a Market-Clearing