Question

If in any market, the supply of a product increases, what will happen?

1) There will be deadweight loss.
2) Consumer surplus will increase.
3) Consumer surplus will decrease.
4) Producer surplus will decrease.

Answer 1

The correct answer to the question is 3) Consumer surplus will decrease.

Step-by-step explanation:

When the supply of a product increases in a market, the equilibrium price and quantity will be affected. First, let's look at the impact on consumer surplus and producer surplus.

1. Consumer surplus: When supply increases, it typically leads to a decrease in prices. This results in an increase in consumer surplus as buyers can now purchase the product at a lower cost.
2. Producer surplus: An increase in supply often leads to a decrease in producer surplus. This is because with more supply available in the market, producers may need to lower their prices to attract buyers, reducing their profit margins.