What happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left)?
A) Producer surplus declines and consumer surplus is unchanged.
B) Consumer surplus declines and producer surplus is unchanged.
C) Consumer surplus declines and producer surplus declines.
D) Consumer surplus is unchanged and producer surplus is unchanged.
E) Producer surplus increases and consumer surplus increases.

Question

Quizplus · Accepted Answer

When the supply of scarves suddenly declines or shifts leftwards, the price of scarves increases. Due to the higher price, consumers are willing to buy fewer scarves which leads to a decrease in consumer surplus. On the other hand, producers will be able to sell the available scarves at a higher price which will increase their producer surplus. However, the overall surplus will decrease as the decline in consumer surplus is greater than the increase in producer surplus. Therefore, the correct answer is C.

What Happens to the Amount of Consumer Surplus and Producer