Use the diagram below to answer the following questions. Assume an initial market price of $4.
a. Identify the initial area of consumer surplus (CS1) when the market price is $4. Next, assume that supply decreases and the market price rises to $5. Draw the new supply curve and then identify the new area of consumer surplus (CS2).
Instructions: (1) Use the tool provided 'CS1' to identify the initial area of consumer surplus. This will drop a small triangle with three endpoints onto the graph. Drag the endpoints to the appropriate position to identify the initial area of consumer surplus. (2) Then use the tool provided 'S2' to draw the new supply curve. (3) Use the tool provided 'CS2' and follow the same process as before to identify the second area of consumer surplus. (graph that needs to be filled out is below)
b. Due to the increase in price, consumer surplus
rises by more than $50
falls by less than $50
rises by less than $50
falls by more than $50
