Question

38)Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be _____

A) to decrease the Producer surplus of Japanese rice producers

B) increase the consumption of rice by the Japanese people

C) to decrease the price of rice to the Japanese people.

D) a welfare gain for the Japanese people

E) to decrease the consumer surplus of

(Please illustrate your answer with graphs, thank you!)

Answer 1

A change of the market structure from the competitive to the monopoly would result in an increase in the price and a decrease in quantity so the consumer surplus will decrease.

Option(E)

When the market is a competitive one,it will produce where MC intersects the demand curve in which case CS is the area ABC

When the firm changes to a monopoly one,it will set MC=MR and produce less at a higher price in which case new CS = area AED so total consumer surplus decreases.