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

What happens to consumer surplus and producer surplus when demand changes as shown in this graph?

Choose 1 answer:
(A) Consumer surplus decreases, producer surplus doesn't change
(B) Consumer surplus increases; producer surplus doesn't change.
(C) Consumer surplus decreases; producer surplus decreases
(D) Consumer surplus increases; producer surplus increases.
(E) Consumer surplus decreases; producer surplus increases

Question

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

What happens to consumer surplus and producer surplus when demand changes as shown in this graph?

Choose 1 answer:
(A) Consumer surplus decreases, producer surplus doesn't change
(B) Consumer surplus increases; producer surplus doesn't change.
(C) Consumer surplus decreases; producer surplus decreases
(D) Consumer surplus increases; producer surplus increases.
(E) Consumer surplus decreases; producer surplus increases

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To analyze the impact on consumer surplus and producer surplus, we need to understand the areas on the graph that these surpluses represent. Consumer surplus is the area between the demand curve and the price level up to the quantity demanded. Producer surplus is the area between the supply curve and the price level up to the quantity supplied. ‖ ‖ step 2 ⋮ When the demand decreases from D1 to D2, the equilibrium price falls from $90 to $70, and the equilibrium quantity falls from 40 units to 30 units. This results in a reduction of the area representing consumer surplus, as consumers are now paying a lower price for a lower quantity. ‖ ‖ step 3 ⋮ The decrease in demand also results in a lower quantity being sold, which means that the area representing producer surplus also decreases because producers are selling less quantity at a lower price. ‖ ‖ step 4 ⋮ Therefore, both consumer surplus and producer surplus decrease when the demand curve shifts from D1 to D2. ‖ ∻Answer∻ ***C*** ∻Key Concept∻ ⚹Impact of a decrease in demand on consumer and producer surplus⚹ ∻Explanation∻ ⚹A decrease in demand leads to a lower equilibrium price and quantity, which reduces both consumer surplus (as they buy less for a lower price) and producer surplus (as they sell less at a lower price).⚹◊What formula or concept in economics can be used to calculate consumer surplus and producer surplus in this scenario⍭ Generate me a similar question◊

Sia