# Economics

posted by on .

I have the following question in my assignment:

The cost of producing stero systems has fallen over the past several decades.

A:Use the supply-and-demand diagram to show the effects of fallaing production costs on the price and quantity of steros sold.

B:In you diagram, show what happens to consumer surplus and producer surplus.

I understand what is happening. I can draw the graph for A. I can't draw the graph for B.

The text gives the following two examples. I understand them. I can't draw the graph properly for when the price is going down.

Sorry, the following are the best I could do to try to draw the examples of the graphs.

Consumer Suplus
~
~~
~~~~~~~
~~~~~~~~Initial Consumer Surplus
~~~~~~~~~~
~~~~~~~~~~~~~
P1XXXXXXXXXXXX__>>>>>>>>>
Consumer Surplus>>>>>>>>>>>Surplus to
to initial_______>>>>>>>>>>>New
Consumers________>>>>>>>>>>>>Consumers
P2XXXXXXXXXXXXX__>>>>>>>>>>>>>
_________________Q1__________Q2

Producer Surplus

P2XXXXXXXXXXXXXXX>>>>>>>>>>
ProducerXXXXXXXXX>>>>>>Suplus to New
Surplus toXXXXXXX>>>>Producers
Initial Producers>>>
P1XXXXXXXXXXXXXXX>>
~~~~~~~~~~~~~~~
~~~~~~~~~~~~ Initial Producer Surplus
~~~~~~~~~~
~~~~~~~~
~~~~~
~~
_________________Q1________Q2

• Economics - ,

Ok, in your graphs, have both the supply curve and the demand curve touch the Y-axis.
Consumer surplus is represented by the area below the demand curve but above equilibrium price.
Producer surplus is represented by the area above the supply curve but below equilibrium price.
Now shift the supply curve. What is the new area of consumer surplus? What is the new area of producer surplus?
(With the increase in supply, consumer surplus should have unambigiously grown. The change in the size of producer surplus is uncertain -- could be bigger could be smaller)

• Economics - ,

what is a definition on the concept additional consumer surplus to initial consumers