Economics Consumer Surplus And Producer Surplus Questions
A change in supply affects consumer surplus and producer surplus in different ways.
When there is an increase in supply, it leads to a decrease in price. This decrease in price benefits consumers as they are able to purchase the same quantity of goods or services at a lower cost. As a result, consumer surplus increases. On the other hand, producers experience a decrease in their surplus as they receive lower prices for their goods or services.
Conversely, when there is a decrease in supply, it leads to an increase in price. This increase in price negatively affects consumers as they have to pay more for the same quantity of goods or services, resulting in a decrease in consumer surplus. However, producers benefit from this situation as they are able to charge higher prices, leading to an increase in producer surplus.
In summary, an increase in supply leads to an increase in consumer surplus and a decrease in producer surplus, while a decrease in supply leads to a decrease in consumer surplus and an increase in producer surplus.