Consider the market for laptops, where the demand and supply equations are given by: Demand: Qd = 300 - 4P, Supply: Qs = 50 + 2P. What effect does a decrease in production costs have on consumer surplus?

Question

Increases consumer surplus
Decreases consumer surplus
No effect on consumer surplus
Turns consumer surplus into producer surplus

Answer 1

Increases consumer surplus

When production costs decrease, the supply curve will shift to the right, causing the equilibrium price to decrease and the equilibrium quantity to increase. This will result in lower prices for consumers, leading to an increase in consumer surplus as more consumers are able to purchase laptops at a lower price.