24. The producer surplus increases whenever the price increases

Question

BlackTom AI · Accepted Answer

To start, consider what producer surplus represents: the difference between what producers are paid for a good (the market price) and the opportunity cost of producing that good (the minimum price they'd be willing to accept, as reflected by the supply curve).
Option 1: True. When the market price increases, two effects occur that tend to raise producer surplus. First, the price on all units sold rises, increasing the revenue that producers receive for each unit. Second, if the higher price leads to a higher quantity sold along the upward-sloping supply curve, more units are sold at that higher price, expanding the area between the price and the marginal cost curve. Taken together, the total producer surplus generally increases as the price rises, assuming other factors remain constant.
Option 2: False. This would be correct only if price changes did not affect the surplus, or if higher prices somehow reduced the area above the supply curve. In standard supply-and-demand analysis, a higher price raises the revenue per unit and typically increases the quantity supplied, which enlarges the surplus—so this statement misstates the relationship between price and producer surplus.
In summary, the intuitive idea is that higher prices lift the payoff producers get for each unit and often expand the number of units sold, leading to a larger producer surplus; the claim that producer surplus does not rise with price contradicts the basic geometric interpretation of the surplus area.

25FAL-ECO-8-48630 Midterm Exam [ Thu, 10/16 by 11:59pm] MODULES[1 TO 5]

24. The producer surplus increases whenever the price increases

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25FAL-ECO-8-48630 Midterm Exam [ Thu, 10/16 by 11:59pm] MODULES[1 TO 5]

24. The producer surplus increases whenever the price increases

View Explanation

Log in for full answers

Similar Questions

Producer surplus is the amount a seller is paid minus the cost of production.

Producer surplus measures the

Use the figure below to answer the following question. What area represents producer surplus after the government imposes the excise tax on the market?

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Part 1In the​ figure, when production is 3 units with a price of​ $3, the producer surplus in this market equals A. b​ + g. B. a​ + b​ + f​ + g​ + h​ + i. C. f​ + g. D. a​ + b​ + f​ + g.

MC Qu. 20 Use the table below to answer... Use the table below to answer the following question. Units Market Price Minimum Acceptable Price 1 $10 $2 2 10 4 3 10 6 4 10 8 5 10 10 6 10 14 What is the value of producer surplus in the table above?

Relative to the unregulated market outcome, what is the change in producer surplus brought about the $3 subsidy per unit?

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

Part 1In the figure, when production is 3 units with a price of $3, the producer surplus in this market equals A. b + g. B. a + b + f + g + h + i. C. f + g. D. a + b + f + g.