Holding all else constant,when the price of a good increases
A) consumer surplus increases.
B) producer surplus decreases.
C) both producer surplus and consumer surplus increase.
D) both consumer surplus and producer surplus decrease.
E) consumer surplus decreases.

Question

Quizplus · Accepted Answer

When the price of a good increases, the consumer surplus decreases because buyers are willing to pay less for the good at the higher price, so they receive less surplus. However, producer surplus increases because sellers are able to sell the good at a higher price, resulting in more profit. Therefore, choices A, C, and D are incorrect. Choice B is true, but not the best answer, as it only represents one side of the market.

Holding All Else Constant,when the Price of a Good Increases