Textbook Problem

The cost of producing flat-screen TVs has fallen over the past decade. Let's consider some implications of this fact.

a. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of flat-screen TVs sold.

b. In your diagram, show what happens to consumer surplus and producer surplus.

c. Suppose the supply of flat-screen TVs is very elastic. Who benefits most from falling production costs—consumers or producers of these TVs?