Answer to Question #223166 in Microeconomics for kitto

Question

Explain (3) how total surplus (consumer surplus + producer surplus) can be maximized at the equilibrium level by illustrating (drawing a graph) consumer and producer surplus using a demand and supply graph.

Answer 1

Consumer surplus is the difference between the price that consumers pay and the price that they are willing to pay. On the supply and demand curve, it is the area between the equilibrium price and the demand curve

Producer surplus is the total amount that a producer benefits from producing and selling a quantity of a good at the market price. It is shown graphically as the area above the supply curve and below the equilibrium price.

Total surplus$=$ is the total area for the consumer surplus plus the total area for the producer surplus

T.S$=$ C.S$+$ P.S

Consumer surplus and producer surplus are maximized at equilibrium as shown in the graph below