25. When the price of a good decreases and all else is held constant a. both...

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25. When the price of a good decreases and all else is held constant a. both consumer surplus and producer surplus decrease b

business economics

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Answer 1

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Answer 25

The correct answer is (b) producer surplus decreases

Producer surplus is the benefit producer receives by selling at a price more than what they are willing to sell. Mathematically Producer surplus is the area above supply curve and below Price line(market price).

If market price decreases then area above supply curve and below price line(market price) will decrease and hence Producer surplus will decrease.(Note as they are now selling at a lower price and thus there benefit will decrease when this price decreases)

Consumer surplus is the benefit consumer receives by paying price less than what they are willing to pay. Mathematically Consumer surplus is the area below demand curve and above Price line(market price).

If market price decreases then area below demand curve and above price line(market price) will increase and hence Consumer surplus will increase.

Hence, the correct answer is (b) producer surplus decreases

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Answer 2

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