(Figure: Determining Surplus and Loss) In the graph, producer surplus is _____ in equilibrium and _____ at a price of $5.

Question

Quizplus · Accepted Answer

In equilibrium, producer surplus is the triangle above the supply curve and below the equilibrium price. This measures the amount by which producers benefit from selling the goods at the equilibrium price rather than at a lower price. In the graph, this is the triangle with a base of 8 (quantity supplied) and a height of 15 (difference between the equilibrium price of $10 and the minimum supply price of $5). Therefore, producer surplus is $120 in equilibrium.
At a price of $5, there is no producer surplus because producers are only willing to supply the quantity where the price equals their minimum supply price, and consumers are only willing to demand the quantity where the price equals their maximum willingness to pay. This quantity is 4, which is below the equilibrium quantity of 8. Therefore, there is a surplus of 4 - 2 = 2 units (where quantity supplied exceeds quantity demanded) and this surplus is not captured by any producers or consumers. At a price of $5, the only benefit to producers is the revenue they receive from selling the 2 units that are demanded, which is $5 per unit for a total of $10. Therefore, the producer surplus is $30.

(Figure: Determining Surplus and Loss) in the Graph, Producer Surplus