The figure below shows the supply and demand curves for jeans in Smallville. Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then total economic surplus will increase by ________ per day.
A)$160
B)$80
C)$40
D)$20

Question

The figure below shows the supply and demand curves for jeans in Smallville.  Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then total economic surplus will increase by ________ per day.
A)$160 
B)$80 
C)$40 
D)$20

Quizplus · Accepted Answer

If the price falls from $60 to $40, then 8 additional pairs of jeans will be sold. As a result, total economic surplus will increase by the area of the triangle that captures the surplus associated with these additional trades. That triangle's area is ½ × ($60 - $20)× (16 - 8)or ½ × $40 × 8 = $160.

The Figure Below Shows the Supply and Demand Curves for Jeans