The diagram below shows the demand and supply curves in a perfectly competitive market. FIGURE 12-5
-Refer to Figure 12-5.In the free-market equilibrium,producer plus consumer surplus is maximized and is illustrated by the area

Question

The diagram below shows the demand and supply curves in a perfectly competitive market.

FIGURE 12-5
-Refer to Figure 12-5.In the free-market equilibrium,producer plus consumer surplus is maximized and is illustrated by the area

Quizplus · Accepted Answer

In a perfectly competitive market, the free-market equilibrium is where the demand and supply curves intersect. In this case, the equilibrium price is P1 and the equilibrium quantity is Q1. The area of producer surplus (PS1), consumer surplus (U1), and total surplus (PS1 + U1) is maximized at this point. This is represented by the area between the demand and supply curves above P1 and below Q1 (PS1U1B11S1U1B13). Therefore, the correct answer is C, which represents this area along with the point of intersection E.

The Diagram Below Shows the Demand and Supply Curves in a Perfectly