Using the supply and demand diagram you drew for Question 5, assume that the demand shifts to the right as a result of an increase in incomes. On the diagram, show how consumer surplus and producer surplus change as a result of the shift in demand. Is total surplus increased, decreased, or does it stay the same? What would the outcome depend on?

Question 5

Prepare a supply and demand diagram, showing producer and consumer surplus at the market equilibrium.

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Price A Equilibrium price 0 Consumer surplus Producer surplus LU E C Equilibrium quantity D Supply Demand B Quantity