Economics Consumer Surplus And Producer Surplus Questions
The impact of excess supply on consumer surplus and producer surplus is as follows:
1. Consumer Surplus: Excess supply leads to a decrease in prices as producers try to sell their surplus goods. This results in an increase in consumer surplus as consumers can purchase the goods at a lower price than before. Additionally, consumers may also benefit from increased variety and choice due to excess supply.
2. Producer Surplus: Excess supply leads to a decrease in prices, which in turn reduces producer surplus. Producers may have to sell their goods at a lower price than they initially anticipated, resulting in a decrease in their profits. Excess supply can also lead to increased competition among producers, further reducing their surplus.
Overall, excess supply benefits consumers by increasing their surplus through lower prices and increased variety, while it negatively affects producers by reducing their surplus through lower prices and increased competition.