Assume the market depicted in the graph is in equilibrium. If the market price is set to $7, which of the following statements is true?
A) Some producers will gain surplus, but total surplus will fall.
B) Some producers will lose surplus, but total surplus will rise.
C) Some consumers will gain surplus, but total surplus will fall.
D) Some consumers will lose surplus, but total surplus will rise.

Question

Assume the market depicted in the graph is in equilibrium. If the market price is set to $7, which of the following statements is true?
A) Some producers will gain surplus, but total surplus will fall. 
B) Some producers will lose surplus, but total surplus will rise. 
C) Some consumers will gain surplus, but total surplus will fall. 
D) Some consumers will lose surplus, but total surplus will rise.

Quizplus · Accepted Answer

If the market price is set to $7, then the quantity demanded will exceed the quantity supplied, resulting in a shortage. As a result, some consumers who are willing to pay more than the market price will not be able to purchase the good, reducing their consumer surplus. However, some producers who are able to sell at the market price will gain surplus, increasing their producer surplus. Overall, total surplus will fall because the reduction in consumer surplus outweighs the gain in producer surplus.

Assume the Market Depicted in the Graph Is in Equilibrium