Economics Consumer Surplus And Producer Surplus Questions Medium
A decrease in supply typically leads to a decrease in consumer surplus. Consumer surplus is the difference between the price consumers are willing to pay for a good or service and the actual price they pay. When supply decreases, the quantity of goods available in the market decreases, leading to an increase in price. As a result, consumers are forced to pay a higher price for the same quantity of goods, reducing their consumer surplus.
Additionally, a decrease in supply can also lead to a decrease in the availability of substitute goods, further reducing consumer surplus. With fewer options available, consumers may have to settle for goods that do not fully satisfy their preferences, resulting in a decrease in their overall satisfaction and consumer surplus.
In summary, a decrease in supply reduces consumer surplus by increasing prices and limiting consumer choice.