Asksia AI LOGO

Sia

Question
Microeconomics
Posted 4 months ago

A change as occurred in the market shown in this graph.

What happens to consumer and producer surplus as a result of the change shown in this graph?

Choose 1 answer:
(A) Consumer surplus decreases; producer surplus decreases

B Consumer surplus doesn't change; producer surplus increases.
(c) Consumer surplus decreases; producer surplus increases
(D) Consumer surplus increases; producer surplus increases.
Sign in to unlock the answer
Answer from Sia
Posted 4 months ago
Solution
a
Initial Equilibrium: The initial equilibrium is at the intersection of the demand curve D1D1 and the initial supply curve S1S1, which occurs at the point (5, 14)
b
New Equilibrium: The new equilibrium is at the intersection of the demand curve D1D1 and the new supply curve S2S2, which occurs at the point (5, 10)
c
Consumer Surplus: Consumer surplus is the area between the demand curve and the price level, up to the quantity sold. Initially, it is the area between D1D1 and P=14P = 14 up to Q=5Q = 5. After the change, it is the area between D1D1 and P=10P = 10 up to Q=5Q = 5. Since the price has decreased, consumer surplus increases
d
Producer Surplus: Producer surplus is the area between the supply curve and the price level, up to the quantity sold. Initially, it is the area between S1S1 and P=14P = 14 up to Q=5Q = 5. After the change, it is the area between S2S2 and P=10P = 10 up to Q=5Q = 5. Since the price has decreased and the supply curve has shifted downwards, producer surplus decreases
Answer
(A) Consumer surplus decreases; producer surplus decreases
Key Concept
Consumer and Producer Surplus
Explanation
Consumer surplus increases when the price decreases, as consumers are paying less for the same quantity. Producer surplus decreases when the price decreases, as producers are receiving less for the same quantity.

Not the question you are looking for? Ask here!

Enter question by text

Enter question by image

Unlock Smarter Learning with AskSia Super!

Join Super, our all-in-one AI solution that can greatly improve your learning efficiency.

30% higher accuracy than GPT-4o
Entire learning journey support
The most student-friendly features
Study Other Question