Answer to Question #223809 in Microeconomics for darily

Question

Suppose that the price of materials used to produce computer hardware, such as graphics cards, is decreased. Show what occurs to price, quantity, consumer surplus, producer surplus, and total surplus in the market for computers graphic cards using a supply-and-demand diagram (draw a graph). Furthermore, provide five explanations for what occurred.

Answer 1

When price of raw material used in the production of graphics cards decreases, then the supply will increase because cost of production will decrease. 

1) Rightward shift in supply curve will decrease the price of graphics cards as producer is willing to sell more due to decrease in cost of production.

2) Increase in supply of Graphics cards will increase the quantity sold in the market.

3) Due to decrease in price, more people are willing and able to purchase the graphic card at the market price. And due to increase in supply consumer surplus will increase. When price decreases from P to P1 consumer surplus will increase from area PEF to area P1E1F 

4) Supply curve has a direct relation with producer surplus. Increase in supply will increase the producer surplus. When price decreases from P to P1 producer surplus will increase from ∆PEA to ∆P1E1B

∆PEA to ∆P1E1B.

5) As producer surplus and consumer surplus increases, total surplus will also increase.