Economics Consumer Surplus And Producer Surplus Questions
The impact of collusion on consumer surplus and producer surplus is generally negative. Collusion refers to an agreement between firms to restrict competition and manipulate prices in order to increase their profits.
In the case of collusion, the firms involved typically raise prices above the competitive level, resulting in a decrease in consumer surplus. This is because consumers are forced to pay higher prices for goods or services, reducing their overall welfare.
On the other hand, collusion often leads to an increase in producer surplus. By artificially raising prices, firms are able to earn higher profits, resulting in an increase in their surplus. This is because they can charge higher prices without facing competitive pressure.
Overall, collusion reduces consumer surplus and increases producer surplus, leading to a redistribution of welfare from consumers to producers. It is considered an anti-competitive practice and is often illegal in many countries.