Figure 4.3 Domestic Market for Gasoline in the United States
-Figure 4.3 represents the domestic market for gasoline in the United States.What is the producer surplus in this market?

Question

Figure 4.3 Domestic Market for Gasoline in the United States  ​
-Figure 4.3 represents the domestic market for gasoline in the United States.What is the producer surplus in this market?

Quizplus · Accepted Answer

Producer surplus is the difference between the price at which producers are willing to sell a good and the actual price they receive. In Figure 4.3, the equilibrium price is $3 per gallon and the supply curve intersects the demand curve at a quantity of 20 billion gallons of gasoline. To find the producer surplus, we need to find the area above the supply curve and below the equilibrium price. This is the area of the triangle formed by the point where the supply curve intersects the y-axis (0,0), the point where it intersects the demand curve (20,3), and the point where the demand curve intersects the x-axis (66.7,0). Using the formula for the area of a triangle (1/2 x base x height), we get:

1/2 x 20 billion x $3 = $30 billion

Therefore, the producer surplus in this market is $30 billion, or $60 per gallon ($30 billion divided by 500 million gallons). The answer is C, $60.

Figure 43 Domestic Market for Gasoline in the United States