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Effects of market shifts on the consumer surplus

Choose one industry with which you are familiar. Draw a graph of this market in equilibrium. Give two examples for the industry of conditions which would change supply and two that would change demand. Explain and illustrate how each of these would affect equilibrium. Indicate the effect on equilibrium price and quantity and the effect on consumer surplus.

Industry selected: Electric utilities

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Solution Preview

See the attached file for a diagram of a market in equilibrium showing the consumer surplus.

Factors that could shift the supply curve include an increase in energy costs and an improvement in technology.

If the cost of coal increases, electric utility firms' costs will also increase. This will decrease supply and shift the supply curve to the left. Equilibrium price will ...

Solution Summary

This solution gives examples of conditions that would shift the supply and demand curves for the electric utilities industry, and predicts the effects of those shifts on the equilibrium price, quantity and consumer surplus.