Which of the following will cause a decrease in the standard of living for an individual?

• A. A rise in producer surplus resulting from technological innovation
• B. An increase in consumer surplus from falling prices
• C. An improvement in allocative efficiency in the market
• D. A decrease in economic surplus due to higher prices and lower income

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of standard of living, which generally refers to the level of wealth, comfort, material goods, and necessities available to an individual or group. It is often linked to economic surplus, which includes both consumer surplus and producer surplus.
2. Step 2: Recall that consumer surplus is the difference between what consumers are willing to pay and what they actually pay, while producer surplus is the difference between the price producers receive and their minimum acceptable price. Both surpluses contribute positively to economic welfare.
3. Step 3: Analyze each option in terms of its effect on economic surplus and standard of living: a rise in producer surplus from technological innovation usually means more efficient production and potentially lower prices, benefiting consumers; an increase in consumer surplus from falling prices directly improves consumer welfare; an improvement in allocative efficiency means resources are better distributed, increasing total surplus.
4. Step 4: Identify that a decrease in economic surplus due to higher prices and lower income reduces the total benefits available to individuals, which directly lowers their standard of living because they have less purchasing power and fewer goods or services.
5. Step 5: Conclude that among the options, the scenario involving a decrease in economic surplus caused by higher prices and lower income is the one that leads to a decrease in the standard of living, as it reduces the overall economic welfare of the individual.