An increase in demand will always
A)increase producer surplus.
B)increase producer surplus and increase consumer surplus.
C)decrease consumer surplus and increase consumer surplus.
D)increase consumer surplus.

Question

Quizplus · Accepted Answer

An increase in demand will lead to an increase in both producer surplus and consumer surplus. Producer surplus increases because producers can charge higher prices due to the increase in demand, while consumer surplus increases because consumers can still purchase the good at a relatively low price. However, the extent of the increase in producer and consumer surplus will depend on the elasticity of supply and demand. If supply is relatively elastic, then the increase in demand may not lead to a large increase in prices, and therefore there may not be a large increase in producer surplus. Similarly, if demand is relatively elastic, then the increase in demand may lead to a significant increase in quantity demanded, which may limit the extent to which prices increase, and therefore limit the increase in producer and consumer surplus.

An Increase in Demand Will Always