-Refer to the diagram above.If producers all agree to raise the price of milk from $1.00 to $1.25,then which of the following is NOT true?
A) Consumer surplus falls by $22.50.
B) Producer surplus rises by $18.
C) The reduction in consumer surplus is exactly offset by the increase in producer surplus.
D) All consumers who previously purchased milk at $1.00 are worse off.
E) Those producers who are unable to sell their milk at $1.25 are worse off.

Question

-Refer to the diagram above.If producers all agree to raise the price of milk from $1.00 to $1.25,then which of the following is NOT true?
A) Consumer surplus falls by $22.50. 
B) Producer surplus rises by $18. 
C) The reduction in consumer surplus is exactly offset by the increase in producer surplus. 
D) All consumers who previously purchased milk at $1.00 are worse off. 
E) Those producers who are unable to sell their milk at $1.25 are worse off.

Quizplus · Accepted Answer

The reduction in consumer surplus is not exactly offset by the increase in producer surplus because there is a deadweight loss due to the price increase, meaning some consumer and producer surplus is lost to the market.

-Refer to the Diagram Above