Question

Use the areas labeled in the market represented in the figure below to answer the following questions. Price ($) А S P B с D E Q" Quantity

Answer 1

Market equilibrium takes place at the point demand and supply curves intersect each other. This takes place at price P* and quantity Q*

1.

Consumer surplus is the area below demand curve and above price line

Consumer surplus = Area A+B+C

Correct answer: A,B,C

2.

Producer surplus is the area below price line and above supply curve

Producer surplus = D+E

Correct answer: D,E

3.

If price increases to P2, consumer surplus falls to just A

So , area lost = B+C

Correct answer: B,C

4.

If price increases to P2, producer surplus changes to B+D

Area lost = E

Correct answer: E

5.

Total surplus before: A+B+C+D+E

Total surplus after: A+B+D

Surplus lost = C+E

Correct answer: C,E