Economic welfare, as measured by consumer and producer surplus, is maximised at market equilibrium price and quantity.
At equilibrium, consumer surplus is maximised at area X A P, and producer surplus is maximised at P A K.
A non-equilibrium price, at P1, causes demand to contract and consumer surplus to shrink while producer surplus increases. However, there is a net welfare loss of area: B, A, C.
Here, surplus shrinks. At a lower price, at P2, supply contracts, so that output is at Q1. Producer surplus shrinks, but consumer surplus increases. However, the net effect is for welfare to fall to area: B, A, C.
An increase in demand raises both consumer and producer surplus. An increase in demand will raise the market price and increase output, withe the result that consumer and producer surplus increase.
A decrease in demand will reduce the market price and reduce output resulting in a fall in both consumer and producer surplus.
An increase in supply will reduce the market price and increase output, resulting in an increase in consumer and producer surplus.
Conversely, a decrease in supply will increase the market price and reduce output - both consumer and producer surplus fall.