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CENGAGE MINDTAP Problems & Applications (Ch 07) The cost of producing laptop computers has fallen over the past decade. Consider some implications of this change. The following graph shows the effect f falling production costs on the market for laptop computers. Price of Laptop Computers S₁ Demand Quantity of Laptop Computers ? Q Search this course X

CENGAGE MINDTAP Problems & Applications (Ch 07) The cost of producing laptop computers has fallen over the past decade. Consider some implications of this change. The following graph shows the effect f falling production costs on the market for laptop computers. Price of Laptop Computers S₁ Demand Quantity of Laptop Computers ? Q Search this course X

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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### Understanding Consumer and Producer Surplus through Graphical Analysis **Graph Explanation:** The graph displays the interaction of supply and demand for laptop computers. It includes: - **Demand Curve (Blue Line):** Represents consumer demand for laptops. - **Initial Supply Curve (Orange Line):** Indicates the original supply before a shift occurs. - **New Supply Curve (Black Dotted Line):** Shows the supply after a shift due to a change in production costs. - **Axes:** The horizontal axis represents the quantity of laptop computers, while the vertical axis is not visible but typically represents price. **Exercise Instructions:** Use the provided graph to determine the areas that represent consumer surplus and producer surplus before and after a shift in supply. Complete the table accordingly. #### Table for Identifying Surplus Areas - **Initial Consumer Surplus:** - Select areas A, B, and C. - **Initial Producer Surplus:** - Select area E. - **New Consumer Surplus:** - Select area A. - **New Producer Surplus:** - Select areas B, E, and F. #### True or False Statement Evaluate the following statement: - **Producers benefit most from falling production costs when the supply of laptop computers is very elastic.** - Possible answers: True or False. This exercise helps understand the shifts in economic surplus as a result of changes in supply, aiding in the comprehension of market dynamics and producer-consumer interactions.
Transcribed Image Text:### Understanding Consumer and Producer Surplus through Graphical Analysis **Graph Explanation:** The graph displays the interaction of supply and demand for laptop computers. It includes: - **Demand Curve (Blue Line):** Represents consumer demand for laptops. - **Initial Supply Curve (Orange Line):** Indicates the original supply before a shift occurs. - **New Supply Curve (Black Dotted Line):** Shows the supply after a shift due to a change in production costs. - **Axes:** The horizontal axis represents the quantity of laptop computers, while the vertical axis is not visible but typically represents price. **Exercise Instructions:** Use the provided graph to determine the areas that represent consumer surplus and producer surplus before and after a shift in supply. Complete the table accordingly. #### Table for Identifying Surplus Areas - **Initial Consumer Surplus:** - Select areas A, B, and C. - **Initial Producer Surplus:** - Select area E. - **New Consumer Surplus:** - Select area A. - **New Producer Surplus:** - Select areas B, E, and F. #### True or False Statement Evaluate the following statement: - **Producers benefit most from falling production costs when the supply of laptop computers is very elastic.** - Possible answers: True or False. This exercise helps understand the shifts in economic surplus as a result of changes in supply, aiding in the comprehension of market dynamics and producer-consumer interactions.
**The Effect of Falling Production Costs on Laptop Markets** The graph illustrates the impact of decreased production costs on the market for laptop computers. **Graph Description:** - **Axes:** - The vertical axis represents the price of laptop computers. - The horizontal axis represents the quantity of laptop computers. - **Curves and Lines:** - **Demand Curve:** Shown in blue, this downward-sloping line indicates the relationship between the price and quantity demanded. - **Supply Curve S₁ (Initial Supply):** Illustrated in gray, this upward-sloping line represents the initial supply condition before the production cost decrease. - **Supply Curve S₂ (New Supply):** Illustrated in orange, this upward-sloping line represents the new supply condition after production costs fall. - **Equilibrium Points:** - **Point C:** Initial equilibrium where the demand curve intersects with the initial supply curve S₁. - **Point D:** New equilibrium where the demand curve intersects with the new supply curve S₂. - **Price and Quantity Changes:** - The initial equilibrium price is higher at point C, decreasing to a lower price at point D. - The equilibrium quantity increases from point F (initial quantity) to point G (new quantity). - **Shifts:** - The supply curve shifts rightward from S₁ to S₂, indicating an increase in supply due to falling production costs. This graph demonstrates that as production costs decrease, the supply of laptop computers increases, leading to a lower market price and higher quantity of laptops sold.
Transcribed Image Text:**The Effect of Falling Production Costs on Laptop Markets** The graph illustrates the impact of decreased production costs on the market for laptop computers. **Graph Description:** - **Axes:** - The vertical axis represents the price of laptop computers. - The horizontal axis represents the quantity of laptop computers. - **Curves and Lines:** - **Demand Curve:** Shown in blue, this downward-sloping line indicates the relationship between the price and quantity demanded. - **Supply Curve S₁ (Initial Supply):** Illustrated in gray, this upward-sloping line represents the initial supply condition before the production cost decrease. - **Supply Curve S₂ (New Supply):** Illustrated in orange, this upward-sloping line represents the new supply condition after production costs fall. - **Equilibrium Points:** - **Point C:** Initial equilibrium where the demand curve intersects with the initial supply curve S₁. - **Point D:** New equilibrium where the demand curve intersects with the new supply curve S₂. - **Price and Quantity Changes:** - The initial equilibrium price is higher at point C, decreasing to a lower price at point D. - The equilibrium quantity increases from point F (initial quantity) to point G (new quantity). - **Shifts:** - The supply curve shifts rightward from S₁ to S₂, indicating an increase in supply due to falling production costs. This graph demonstrates that as production costs decrease, the supply of laptop computers increases, leading to a lower market price and higher quantity of laptops sold.
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