Question

40. S1 D1 Quantity Refer to the diagram, in which SI and DI represent the original supply and demand curves and $2 and D2 the new curves. In this market increase in demand has been more than offset by an increase in supply point M shows the new equilibrium position. C) the new equilibrium price and quantity are both greater than originally D) the equilibrium position has shifted from M to K 41. Producer surplus is the difference between A) the maximum prices consumers are willing to pay for a product and the lower equilibrium he minimum prices producers are willing to accept for a product and the higher equilibrium price. C) the quantity supplied and quantity demanded at an above equilibrium price. D) the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

Answer 1

40. In the above diagram, the S1 and D1 represents the original supply and demand curves and S2 and D2 represents the new supply and demand curves. In this market, an increase in consumer income causes the supply curve to shift and as a result the demand has increased which leads to the decrease in the equilibrium price. Hence, the increase in demand has been more than offset by an increase in supply.

41. Producer surplus is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. Producer surplus is considered as the difference between actual sales price and economic cost, the price the producer receives in the market is more than the minimum price which they would be willing to supply for. Hence, producer surplus is the additional benefit which yields profit for producers.