Question

Suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. If the supply curve shifts downward, equilibrium price will _____, equilibrium quantity will _____, consumer surplus will _____, and producer surplus will _____. a. decrease; increase; increase; b. not change decrease; increase; c. not change; increase decrease; d. decrease; increase; not change;e. decrease; increase; increase; decrease.

Answer 1

Answer: The correct answers are 1- decrease, 2- increase, 3- increase and 4- not change.

Explanation: If the supply curve shifts downward, equilibrium price will decrease, equilibrium quantity will increase, consumer surplus will increase, and producer surplus will not change.

Answer 2

Answer:

The answer is: decrease, increase, increase, not change

Explanation:

When the horizontal supply shifts down, it means that the producers are willing to accept a lower price for the quantities that they produce, the equilibrium quantity will therefore increase as the quantities demanded at the lower prices increase.

Consumer surplus is the difference between the highest price a consumer is willing to pay and the actual price that they pay for a good or service. Since the price is now lower at the quantities demanded, the consumer surplus is now higher after the shift in the supply curve.

Producer surplus is the difference between the lowest price a producer would be willing to accept and the market price. In a competitive market, goods are valued at the market price. Therefore, the lowest price a producer is willing to accept is equal to the marginal cost of production which in this case is also equal to the market price. The producer surplus in a competitive market is therefore zero since the lowest price is the market price and it does not change.