Assume the market depicted in the graph is in equilibrium. If the price is set below $6:
A) producer surplus will increase.
B) producer surplus will decrease.
C) total surplus will increase.
D) quantity will increase.

Question

Assume the market depicted in the graph is in equilibrium. If the price is set below $6:
A) producer surplus will increase. 
B) producer surplus will decrease. 
C) total surplus will increase. 
D) quantity will increase.

Quizplus · Accepted Answer

If the price is set below $6, producer surplus will decrease because the price will now be lower than their willingness to sell, resulting in lower profit margins. This will also lead to a shortage in supply as producers will reduce their output, which may result in higher prices in the long run. Total surplus may or may not increase, depending on the extent of the decrease in producer surplus and the increase in consumer surplus, but it cannot be certain. And quantity may increase or decrease, depending on the extent of the decrease in price and the elasticity of demand.

Assume the Market Depicted in the Graph Is in Equilibrium