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 increases; producer surplus decreases
(B) Consumer surplus decreases; producer surplus doesn't change.
(C) Consumer surplus increases; producer surplus increases
(D) Consumer surplus decreases; producer surplus decreases.
(E) Consumer surplus doesn't change, producer surplus doesn't change

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 increases; producer surplus decreases
(B) Consumer surplus decreases; producer surplus doesn't change.
(C) Consumer surplus increases; producer surplus increases
(D) Consumer surplus decreases; producer surplus decreases.
(E) Consumer surplus doesn't change, producer surplus doesn't change

Accepted Answer

∻Solution∻ ‖ a ⋮ Initial Equilibrium: The initial equilibrium is at the intersection of the supply curve $S$ and the initial demand curve $D1$, where $P = 26$ and $Q = 22$. ‖‖ b ⋮ Demand Shift: The demand curve shifts from $D1$ to $D2$, indicating a decrease in demand. This shift results in a new equilibrium at the intersection of $S$ and $D2$, where $P = 16$ and $Q = 12$. ‖‖ c ⋮ Consumer Surplus: Consumer surplus is the area between the demand curve and the price level. Initially, it is the area under $D1$ and above $P = 26$. After the shift, it is the area under $D2$ and above $P = 16$. Since $D2$ is lower than $D1$, consumer surplus decreases. ‖‖ d ⋮ Producer Surplus: Producer surplus is the area between the supply curve and the price level. Initially, it is the area above $S$ and below $P = 26$. After the shift, it is the area above $S$ and below $P = 16$. Since the price level has decreased, producer surplus also decreases. ‖ ∻Answer∻ ⚹ (D) Consumer surplus decreases; producer surplus decreases. ⚹ ∻Key Concept∻ ⚹ Changes in consumer and producer surplus due to shifts in demand ⚹ ∻Explanation∻ ⚹ When the demand curve shifts leftward (decreases), both consumer surplus and producer surplus decrease because the equilibrium price and quantity both fall. ⚹◊What is the formula to calculate consumer surplus in Microeconomics?⍭ Generate me a similar question◊

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