Answer
a) The market price falls and the market quantity increases. Consumer surplus increases, and producer surplus might increase.
b) Typewriters are a substitute for computers. Typewriter producers should be sad about the advance in computers since there is a loss in producer surplus.
c) Software is a complement to computers. Software producers should be happy since their surplus increased.
d) Yes, this analysis does help explain why Bill Gates is one of the world's richest men. There was a move toward computers and computer software, and he helped develop software (and gained producer surplus).
Work Step by Step
a) Please see the first graph. The supply curve is shifted to the right. Thus, the market price falls and the market quantity increases.
On the first graph, the original consumer surplus is A, and the original producer surplus is B+E. With the shift in the supply curve, consumer surplus is now A+B+C+D (an increase of B+C+D). With the shift in the supply curve, producer surplus is now E+F+G (a change of F+G−B).
F+G−B can be either positive or negative.
b) Since computers are substitutes for typewriters, and there is a increased supply of computers, the demand for typewriters decreases.
Please see the second graph. The demand curve shifts to the left, so the market price and quantity both decrease. Consumer surplus changes from $A+B$ to $A+C$. Producer surplus changes from $C+D+E$ to $E$ (a loss of $C+D$).
c) Please see the third graph. The demand curve shifts to the right, so the market price and quantity both increase. Consumer surplus changes from $A+C$ to $A+B$. Producer surplus increases from $C$ to $C+D+E$.
