Economics

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I am taking Microeconomics.

I have the following question:

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 falling production costs on the price and quantity of steros sold.

b) In your diagram, show what happens to consumer surplus and producer surplus.


I understand the question. I am not sure how the graph should look with the price going down for the concumser and producer surplus.

Can anyone provide a place online I can look to find a graph that shows this situation?

  • Economics -

    Draw your initial supply and demand curves. But this time have the supply and demand curves touch the y-axis. Indicate initial price and quantity

    Consumer suplus is the area BELOW the demand curve an ABOVE the price line. Producer surplus is the area BELOW the price line and ABOVE the supply curve.

    Now shift the supply curve (to the right indicating an increase in supply. What happens to the new levels of producer and consumer surplus?

    I hope this helps

  • Economics -

    here is a picture
    http://en.wikipedia.org/wiki/Consumer_surplus

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