Question

Suppose that for a perfectly competitive market the initial demand curve is given by the equation P = 10 − Q and the supply curve is given by the equation P = 2 + Q. Now, suppose that the only change to this market is that the number of buyers increases, giving rise to a new demand curve that has the same slope as the initial demand curve. (Everything else remains the same.) Then

(A) consumer surplus (unambiguously) increases.

(B) consumer surplus (unambiguously) decreases.

(C) consumer surplus (unambiguously) remains the same.

(D) consumer surplus may increase, decrease, or remain the same. We need more information to determine what happens to consumer surplus.

Answer 1

10,10) E = final Equilibrium Eo inihal, Equilibrium Dotcose 048210 V P4Q- 20 9 (10,0) (2010) initial consumer surplus - Area of a friangle ABEO 2 L x Base theyht C', = $8 Şx (10-6)(4) = 8 final conscener surples = Area of a triangle DCE) = * x DC X DE = $x (20-11)(9) = 40.5 option A Consumer suples (unenbiguously increases i correct opion E