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 Q₃,and the price was still equal to its free-market level,the loss in producer 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 Q₃,and the price was still equal to its free-market level,the loss in producer surplus relative to the competitive equilibrium would be illustrated by area

Quizplus · Accepted Answer

The competitive equilibrium is where the demand and supply curves intersect and determine the price and quantity in the market. In this case, the equilibrium output is Q1 and the price is P1.

If the output were to decrease to Q0, the price would still be at P1, which means that there would be excess demand in the market. As a result, some producers would be willing to sell their product at a price lower than P1, which leads to a decrease in producer surplus.

The loss in producer surplus relative to the competitive equilibrium is illustrated by the area between the supply curve and the price line from Q0 to Q1, which is marked as area 3 in the diagram. Therefore, the answer is C.

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