Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Producer surplus decreases as the price goes up
B
Producer surplus remains unchanged
C
Producer surplus increases as producers receive a higher price for their goods
D
Producer surplus becomes negative
Understanding the Answer
Let's break down why this is correct
Answer
In a competitive market, if the equilibrium price of a product increases, producer surplus is likely to rise. Producer surplus is the difference between what producers are willing to accept for a good and what they actually receive. When the price goes up, producers earn more for each unit they sell, which means they can keep more of the money as profit. For example, if a farmer sells apples for $1 each but the price increases to $1. 50, the extra 50 cents per apple represents an increase in their producer surplus.
Detailed Explanation
When the price goes up, producers earn more money for each item sold. Other options are incorrect because Some might think that higher prices hurt producers; It may seem like prices don't change surplus, but they do.
Key Concepts
market equilibrium
equilibrium price
producer surplus
Topic
Analyzing Market Equilibrium
Difficulty
hard level question
Cognitive Level
understand
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