Question

. Why is it inefficient When a market produces, selis and consumes & quan equilibrium quantity? 2. Why is it inefficient when a market produces, sells and consumes a quantity that is more than the equilibrium quantity? 3. Draw a supply and demand diagram. Label cach axis, the demand curve, the supply curve, the ity hae es mm me equilibrium price, and the equilibrium quantity. Show the impact of a decrease in supply. Label the new equilibrium price and quantity. Then, answer these ques 3.a. Is the new equilibrium price higher, lower or impossible to say for sure? 3.b. Is the new equilibrium quantity higher, lower or equal to the old equiibrium quantity? Or is it impossible to say for sure? 3.c. Is the new consumer surplus higher, lower or equal to the old ecquilibrium pice Orisit to th impossible to say for sure? 3.d. Is the new producer surplus impossible to say for sure? 3.e. Is the new total surplus higher, lower or equal to the old equilibrium price? Or is it higher, lower or equal to the old equilibrium price? Or isit impossible to say for sure?

Answer 1

3. Refer the attached picture below

Now when supply curve shifts to left that is supply decreases. Refer the attached picture below

3a. Equilibrium price is higher.

3b. New equilibrium quantity is less than old equilibrium quantity.

3c. Refer the two pictures Consumer Surplus is less than previous consumer surplus.

3d. Yes the producer surplus is greater than previous case. In second picture the PS also included the area between old and new demand curve.

3e. Total surplus will be less than other since here after the shift in supply deadweight loss is there. Hence new total surplus is less than old total surplus.

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