Answer
a) Please see the first graph.
b) Consumer surplus increases by $14$ million dollars.
Producer surplus decreases by $8$ million dollars.
Total surplus increases by $6$ million dollars.
Work Step by Step
a) The first graph shows the prices and quantities in the market.
b)
Change in total surplus:
Area A:
$(20-16)*1$ million $+ 1/2*(20-16)*(3-1)$ million
$4*1$ million $+1/2*4*2$ million
$4 + 4$ million
$8$ million
Area B:
$(3-1)$ million $*(20-16)*1/2$
$2$ million $*2$
$4$ million
Area C:
$(4-3)$ million $*(20-16)*1/2$
$1*4*1/2$ million
$2$ million
Total surplus: $8+4+2= 14$ million
Consumer surplus increases by areas $A+B+C$, $14$ million dollars.
Producer surplus decreases by area $A$, $8$ million dollars.
Total surplus increases by $6$ million dollars.
