Assume the market is in equilibrium in the graph shown at demand D and supply S₂ (at a quantity of 6).If the supply curve shifts to S₁,and a new equilibrium is reached (at a quantity of 4),which of the following is true? A) Total surplus would increase by $7.50. B) Total surplus would decrease by $16.50. C) Total surplus would increase by $32. D) Total surplus would decrease by $14.00.

Question

Quizplus · Accepted Answer

When the supply curve shifts to S₁, the equilibrium quantity decreases from 6 to 4, and the equilibrium price increases. This leads to a decrease in consumer surplus and an increase in producer surplus. However, the increase in producer surplus is smaller than the decrease in consumer surplus, resulting in a net decrease in total surplus. The decrease in total surplus is equal to the decrease in consumer surplus plus the decrease in producer surplus, which is ($7.50 + $6.50) = $14. Therefore, the correct choice is D, Total surplus would decrease by $14.00.

Assume the Market Is in Equilibrium in the Graph Shown