12.5 : Shift in Supply Curve

In perfect competition, where many sellers sell the same product, the market forces of demand and supply determine the market price and equilibrium quantity. 

Consumers benefit when they pay less than what they are willing to pay, creating a consumer surplus. Producers benefit when they sell at a price higher than their marginal cost, which is the minimum they are willing to accept, thus generating a producer surplus.

When the cost of production increases due to higher input prices, firms face higher production costs. This makes the supply curve shift left. As a result, the market price rises, and fewer goods are sold. The higher price reduces the consumer surplus because buyers must pay more for each unit and purchase fewer units overall. The producer surplus experiences mixed effects. Some of the original producer surplus is lost, while part of the initial consumer surplus is transferred to the new producer surplus. Therefore, the overall change in the producer surplus is uncertain.

Alternatively, if production costs decrease and supply increases, the supply curve shifts right. This results in a lower price and higher equilibrium quantity. The consumer surplus grows. Therefore, the net effect on the producer surplus remains uncertain. 

To summarize, changes in supply influence market equilibrium, affecting both consumer and producer surplus.