The diagram below shows the demand and supply curves in a perfectly competitive market. FIGURE 12-5
-Refer to Figure 12-5.If output in this market were Q_1,the total loss in economic surplus relative to the competitive equilibrium would be illustrated by area

Question

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

FIGURE 12-5
-Refer to Figure 12-5.If output in this market were Q_1,the total loss in economic surplus relative to the competitive equilibrium would be illustrated by area

Quizplus · Accepted Answer

The total loss in economic surplus relative to the competitive equilibrium is illustrated by the sum of the areas 1 and 2. Therefore, the best choice is (D) 1 + 2. Areas 3 and 4 represent the transfer of surplus from one party to the other (i.e. from consumers to producers) and do not contribute to the total loss in economic surplus.

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