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 decreases; producer surplus decreases
(c) Consumer surplus increases; producer surplus doesn't change.
(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 decreases; producer surplus decreases
(c) Consumer surplus increases; producer surplus doesn't change.
(D) Consumer surplus increases; producer surplus increases.
(E) Consumer surplus decreases; producer surplus increases

Accepted Answer

∻Solution∻ ‖ a ⋮ Initial Equilibrium: The initial equilibrium is at the intersection of the supply curve (S) and the first demand curve (D1), where $P = 90$ and $Q = 40$. ‖ ‖ b ⋮ New Equilibrium: The new equilibrium is at the intersection of the supply curve (S) and the second demand curve (D2), where $P = 70$ and $Q = 30$. ‖ ‖ c ⋮ Consumer Surplus: Consumer surplus is the area between the demand curve and the price level, up to the quantity demanded. Initially, it is the area between D1 and $P = 90$. After the shift, it is the area between D2 and $P = 70$. Since the price has decreased and the quantity has decreased, the consumer surplus decreases. ‖ ‖ d ⋮ Producer Surplus: Producer surplus is the area between the supply curve and the price level, up to the quantity supplied. Initially, it is the area between S and $P = 90$. After the shift, it is the area between S and $P = 70$. Since the price has decreased, the producer surplus decreases. ‖ ∻Answer∻ ⚹ (B) Consumer surplus decreases; producer surplus decreases ⚹ ∻Key Concept∻ ⚹ Consumer and Producer Surplus ⚹ ∻Explanation∻ ⚹ Consumer surplus decreases because the price consumers are willing to pay has decreased, leading to a lower area under the demand curve above the price level. Producer surplus decreases because the price producers receive has decreased, leading to a lower area above the supply curve below the price level. ⚹◊How does the change in demand affect consumer surplus and producer surplus in this market scenario?⍭ Generate me a similar question◊

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