Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 7 - Part III - Consumers, Producers, and the Efficiency of Markets - Problems and Applications - Page 152: 2

Answer

Consumer surplus for lemons decreases. Consumer surplus for lemonade also decreases.

Work Step by Step

The first graph is the market for lemons. Before the freeze, consumer surplus was the sum of areas $A + B + C$. However, the freeze shifted the supply curve to the left. The new equilibrium price and quantity are $P_{1}$ and $Q_{1}$, respectively. The new price and quantity now have the consumer surplus of area $A$. The second graph is the market for lemonade. Lemons are an input for lemonade, so the supply curve for lemonade also shifts to the left. Consumer surplus was the sum of areas $D + E + F$ (before the freeze). The new equilibrium price and quantity are $P_{1}$ and $Q_{1}$, so the consumer surplus is now area $D$.
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