Assume the market is in equilibrium in the graph shown at demand D and supply S₂. If the supply curve shifts to S₁, and a new equilibrium is reached, which of the following is true? A) Producer surplus would increase, and total surplus would increase. B) Producer surplus would decrease, and total surplus would increase. C) Producer surplus would increase, and total surplus would decrease. D) Producer surplus would decrease, and total surplus would decrease.

Question

Quizplus · Accepted Answer

When the supply curve shifts to the left from S₂ to S₁, the equilibrium point moves from E1 to E2, causing the price to increase from P1 to P2 and the quantity to decrease from Q1 to Q2. As a result, producer surplus decreases, since producers are now receiving a lower price for their goods, and total surplus also decreases, as there is a decrease in both consumer and producer surplus.

Assume the Market Is in Equilibrium in the Graph Shown