Offsetting Demand and Supply Shifts Preserve Consumer Surplus

Steps:

• Define consumer surplus as the area between the demand curve and market price up to quantity sold.
• Evaluate each option's impact on demand (willingness to pay) and supply (production costs/competition).
• Identify shifts: rightward for increased demand/supply, leftward for decreased.
• Determine net effect on equilibrium price/quantity and surplus area.

Why D is correct:

• For a normal good, income rise shifts demand right (higher willingness to pay); rising costs shift supply left (higher price), offsetting to maintain similar equilibrium and surplus per the supply-demand model.

Why the others are wrong:

• A: Substitutes shift demand left (lower willingness), costs rise shift supply left (higher price), both reduce surplus.
• B: Mergers reduce competition, shifting supply left (higher prices), decreasing surplus.
• C: Income rise shifts demand right, falling costs shift supply right, both expand market and increase surplus.

Final answer: D