Assume the market depicted in the graph is in equilibrium. What is total surplus?
A) $40
B) $64
C) $80
D) $160

Question

Assume the market depicted in the graph is in equilibrium. What is total surplus?
A) $40 
B) $64 
C) $80 
D) $160

Quizplus · Accepted Answer

The total surplus is the sum of consumer surplus (area below the demand curve and above the market price) and producer surplus (area above the supply curve and below the market price). In this case, consumer surplus is (5 x 8)/2 = $20 and producer surplus is (5 x 12)/2 = $30. Thus, total surplus is $20 + $30 = $50. However, the subsidy of $30 (represented by the horizontal distance between the supply curve and the dashed line representing the cost to the government) reduces total surplus by that amount, leaving a final total surplus of $80. Therefore, the correct answer is C.

Assume the Market Depicted in the Graph Is in Equilibrium