Assume the cost of producing flat-screen TVs has fallen over the past years;

A. Explain what would happen to the supply curve, equilibrium price and quantity of TV.

B. Will consumer surplus increase?

C. If the supply of TV is very price elastic, who gains more benefits of lower price in the market, producers, or consumers? Explain.

A. As the cost of producing flat screen TVs has fallen over the years, it will become more profitable for the producers to the produce more flat screen TVs. Hence, the supply curve for flat screen TVs will shift rightward. The equilibrium price will fall when the supply increases. The equilibrium quantity will increase when the supply curve shifts rightwards.

B. The consumer surplus will increase because of the reduction in the price of the flat screen TVs.

C. If the supply of TV is very price elastic, the percentage change in the quantity supplied will be greater than the percentage change in the price of the flat screen TV. Hence, as the price falls, the supply of the TV will fall too. Producers gain in such a situation as they are able to reduce the supply of the TVs when the price falls. Also, the reduction in prices will reduce the consumer surplus if the supply is elastic as there will be excess demand at the reduced price and short supply of the TVs.