Question

9:06 vilE Đ 18:34:17 Exit D 31. The following figure illustrates the demand and supply of decorative light bulbs in a perfectly competitive market. Price Supply Demand Quantity Refer to the figure above. What is the maximum possible social surplus? $225 $150 $100 $375 D32 The social surplus in a market is $50. If another economic agentumers de TICKE such that the

Answer 1

Answer: $150

Social surplus is essentially the sum of the consumer and producer surplus, which is maximised in a perfectly competitive market as free-market equilibrium is reached.

What the consumers actually pay is $15 per unit of the light bulbs and hence, the consumer surplus (CS) would be the area of the triangle formed above this price and below the demand curve.

Similarly, the producer surplus (PS) is the area of the triangle formed below the equilibrium price and where the supply curve intersects the y-axis.

CS= (1/2)*15*10 = 75

PS= (1/2)*15*10 = 75

Therefore, social surplus = $150