All else being equal, a negative supply shock:
A) causes consumer surplus to increase and producer surplus to decrease.
B) causes consumer surplus to decrease and producer surplus to increase.
C) causes both consumer and producer surplus to increase.
D) causes both consumer and producer surplus to decrease.

Question

Quizplus · Accepted Answer

A negative supply shock, such as a sudden decrease in the availability of a good, typically leads to higher prices and lower quantities available. This results in a decrease in consumer surplus because consumers have to pay more for less of the good. Similarly, producer surplus decreases because the shock often means producers can't produce and sell as much as before, despite the higher prices.

All Else Being Equal, a Negative Supply Shock