2.5.3—Surplus changes

Consumer surplus changes when the price or demand conditions change; producer surplus changes when the price or supply conditions change. A diagram shows the areas gained or lost.

A demand increase tends to raise price and quantity, usually increasing both surpluses, while a supply reduction tends to raise price for buyers but may reduce total trades and producer surplus depending on the shift.

A subsidy that shifts supply right lowers price, increasing consumer surplus; producers may gain from more sales but lose on the lower price per existing unit.

Do not assume a lower price always reduces producer surplus or a higher price always increases total welfare; quantity and the curve shifts matter.