6. The cost of producing stereo systems has fallen over the past several decades. Let’s consider some implications of this fact.

a. Use a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of stereos sold.

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

c. Suppose the supply of stereos is very elastic. Who benefits most from falling production costs—

consumers or producers of stereos?