Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13.If the market price of hammers decreased from $15 to $10:
A) Bob's Hardware would lose $5 of producer surplus.
B) producer surplus would fall by $5 for each producer.
C) Bob's Hardware would no longer sell hammers.
D) total producer surplus would fall by $15.

Question

Quizplus · Accepted Answer

DWhen the market price of hammers decreases from $15 to $10, Bob's Hardware, which could offer a hammer for a minimum of $13, would no longer sell hammers because the market price is below their minimum offer price. This means choice C is correct. Additionally, the total producer surplus would decrease because Bob's Hardware is no longer selling hammers, and the surplus for House Depot and Lace Hardware would also decrease due to the lower market price. However, the total decrease in producer surplus is not simply $5 for each producer as suggested in choice B, nor is it correct that Bob's Hardware would lose $5 of producer surplus specifically, as implied in choice A. The total producer surplus decrease involves considering the changes in surplus for all producers, not just a uniform $5 loss for each. Therefore, choice D is correct because the total producer surplus decreases due to the exit of Bob's Hardware from the market and the reduced price affecting the surplus of House Depot and Lace Hardware.

Assume There Are Three Hardware Stores, Each Willing to Sell