23. The following diagram shows the consumer and producer surplus in the market

Question

23. The following diagram shows the consumer and producer surplus in the market for bread. Consider changes in the elasticities of the demand and supply curves. Assuming that the market equilibrium output and price are unchanged, which of the following statements is correct? Select one answer A less elastic supply curve will lead to a larger producer surplus. a. b. A more elastic demand curve will lead to a smaller producer surplus. c. A less elastic demand curve will lead to a smaller consumer surplus.

Explanation / Answer

Ans is A

If the supply curve touches the price axis then elasticity is greater than one.

If the supply curve pass through origin than elastocity is one

If the supply curve pass through the quantity axis, then elastivity is less than one.

Thus when elastivity is less than one and equilibrium remains same at A then lriducer surplus will increase.

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