Lower input costs boost market surpluses

Steps:

• Fall in oil price cuts energy costs for manufacturers, reducing overall production expenses.
• Lower costs shift the supply curve rightward, increasing quantity supplied at each price.
• Equilibrium price falls while equilibrium quantity rises.
• Consumers gain surplus from cheaper goods; producers gain from higher sales volume and lower costs.

Why D is correct:

• Rightward supply shift expands total surplus via lower prices (benefiting consumers) and higher output with reduced marginal costs (benefiting producers), per supply-demand equilibrium.

Why the others are wrong:

• A: Both surpluses rise, not fall, due to efficiency gains.
• B: Consumer surplus rises from lower prices, not falls.
• C: Producer surplus rises from cost savings and more output, not falls.

Final answer: D