Supply and demand figure a* The next few questions relate to the supply and dema

Question

Supply and demand figure a* The next few questions relate to the supply and demand figure shown. The equilibrium price and quantity are shown as P and Q Which area labeled in the figure reflects consumer surplus: v, x, y, or z? Which area labeled in the figure reflects supplier profits: v, x, y, or z? Assume a change in prices for other goods leads to an increase in the demand for the good shown while everything else remains unchanged. Given that one change, would total supplier profits increase, decrease, remain the same, or is the effect unknown because not enough information is available? Please answer either increase, decrease, remain the sane, or unknown.

Explanation / Answer

a) The area below the demand curve and above the price level shows the consumer surplus. Here, the consumer surplus is represented by "V".

b) The area above the supply curve and below the price level represents the producer surplus or the supplier profit. Here, that area is represented by "X".

c) With an increase in the demand, the demand curve will shift upward. This will increase the price and quantity. The supplier profit will also increase.

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