ECONOMICS
CONSUMERS
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
increase producer surplus.
|
|
|
reduce producer surplus.
|
|
|
not affect producer surplus.
|
|
|
Any of the above are possible.
|
Detailed explanation-1: -If a market is allowed to move freely to its equilibrium price and quantity, then an increase in demand will a. increase producer surplus.
Detailed explanation-2: -When a market is in equilibrium, it is allocative efficient (when we are meeting the needs of society), and the sum of consumer and producer surplus, or total economic surplus, is maximized. This is shown by the graph below at the point where the quantity demanded equals quantity supplied (Q1).
Detailed explanation-3: -The size of the producer surplus and its triangular depiction on the graph increases as the market price for the good increases, and decreases as the market price for the good decreases.
Detailed explanation-4: -The total difference between the equilibrium price of the item and lower price producers are willing to accept is called the Producer Surplus at the equilibrium. This is also an area between two curves: the horizontal line y=P.
Detailed explanation-5: -A surplus exists when the price is above equilibrium, which encourages sellers to lower their prices to eliminate the surplus. A shortage will exist at any price below equilibrium, which leads to the price of the good increasing.