Assume the market depicted in the graph is in equilibrium. If the price is subsequently set at $22, which of the following statements is true? I. Some producers will gain surplus.
II) Some surplus will be transferred from producers to consumers.
III) Total surplus will fall.
A) III only
B) II and III only
C) I and II only
D) I, II, and III

Question

Assume the market depicted in the graph is in equilibrium. If the price is subsequently set at $22, which of the following statements is true? I. Some producers will gain surplus.
II) Some surplus will be transferred from producers to consumers.
III) Total surplus will fall.
A) III only 
B) II and III only 
C) I and II only 
D) I, II, and III

Quizplus · Accepted Answer

If the price is set at $22, the quantity demanded will decrease from Q1 to Q2, while the quantity supplied will increase from Q1 to Q2. This results in a surplus of goods, which will put downward pressure on the price. As a result, some producers will gain surplus (I). However, surplus will also be transferred from producers to consumers, as some producers will have to lower their prices to sell their goods, resulting in a gain for consumers (II). Total surplus will fall in this scenario because the decrease in producer surplus will be larger than the increase in consumer surplus (III).

Assume the Market Depicted in the Graph Is in Equilibrium