Assume the market shown in the graph is in equilibrium at demand (D) and supply (S₁). If the supply curve shifts to S₂, total surplus falls by: A) $50. B) $75. C) $150. D) $200.

Question

Quizplus · Accepted Answer

When the supply curve shifts from S₁ to S₂, the new equilibrium price and quantity will be at E2. At the initial equilibrium, total surplus is given by the sum of consumer surplus and producer surplus (area A+B+C+D). After the supply curve shifts, consumer surplus will decrease (as the price increased) and producer surplus will increase (as the quantity increased), as shown by the new areas A, B, and D. However, the reduction in consumer surplus is greater than the increase in producer surplus, resulting in a net decrease in total surplus (by the area marked as E). Based on the graph, the value of E is $150, so the correct answer is C ($150).

Assume the Market Shown in the Graph Is in Equilibrium