Final answer:
If the price of a product increases by $10, consumer surplus decreases by that amount as they are paying a higher price for the same product. Increases in the cost of production lead to increased product prices, further reducing consumer surplus. The overall effect of price increase is that consumer surplus shrinks, leading to less consumer satisfaction.
Step-by-step explanation:
When considering how changes in price affect consumer surplus, let's first define what this term means. Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. If the price of a product goes up by $10, and assuming the individual's valuation of the product does not change, their consumer surplus decreases by that amount because they are now paying a higher price for the same product.
In economic terms, if the cost of production increases, as represented by an increase of $0.75 in the cost to produce a pizza due to cheese being more expensive, a firm logically has to increase its prices to maintain its desired profit margin. Therefore, if the firm raises its price by the same amount the costs have gone up, the supply curve will reflect this change, and consumer surplus is expected to decrease as a consequence.
As seen in the scenario where barriers to trade cause the price to rise to PNoTrade, the producer surplus may increase due to selling at higher prices, but the consumer surplus is reduced as consumers have to pay more for potentially less quantity, as illustrated by a smaller triangle with vertices PNoTrade, E, and B.