Question

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

A. increases, and producer surplus increases.
B. increases, and producer surplus decreases.
C. decreases, and producer surplus increases.
D. decreases, and producer surplus decreases.

Answer 1

Following the Surgeon General's announcement, the demand for chocolate decreases, leading to a reduced equilibrium price and a decrease in producer surplus.

Step-by-step explanation:

When the Surgeon General announces that eating chocolate increases tooth decay, this information negatively affects consumer preferences, leading to a decrease in the demand for chocolate. As demand declines, less chocolate will be sold at any given price, resulting in a lower equilibrium price of chocolate. Accordingly, the amount producers are willing to supply at each price also drops, illustrating a decrease in producer surplus since the price they receive and the quantity they sell both decline. Thus, the correct answer is D. decreases, and producer surplus decreases.

Answer 2

Answer: Option D

Step-by-step explanation: Equilibrium price is the one where the demand curve and supply curve of the product intersect each other.

The announcement of the surgeon will decease the demand for the product, then market forces will come into play leading to a decrease in supply which ultimately leads to lower producer surplus due to lower sales and lower price.

Thus, the correct option is D .