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 increased from $8 to $11, total producer surplus would increase by:
A) $3.
B) $6.
C) $9.
D) $4.

Question

Quizplus · Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive. Initially, at $8, only House Depot would sell a hammer, with a producer surplus of $1 ($8 - $7). When the price increases to $11, both House Depot and Lace Hardware would sell hammers, with surpluses of $4 ($11 - $7) and $1 ($11 - $10), respectively. The total increase in producer surplus is $4 ($4 + $1 - $1).

Assume There Are Three Hardware Stores, Each Willing to Sell