ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When producers have a surplus of supply, they must sell the product at lower prices. Consequently, more consumers will purchase the product, now that it’s cheaper.

Detailed explanation-2: -If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated. If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.

Detailed explanation-3: -Consumer surplus always increases as the price of a good falls and decreases as the price of a good rises. It is depicted visually by economists as the triangular area under the demand curve between the market price and what consumers would be willing to pay.

Detailed explanation-4: -Here, it is given that there is a reduction in the market price of the product that tends to raise the gap between the maximum willingness to pay and product price. As a result, the consumer surplus will rise.

Detailed explanation-5: -Suppliers can’t afford to lower price because they still receive a greater revenue if they sell less products for a higher price and have a surplus. Since they can only sell a fewer number of their products, they will keep the excess supply in their storages.