Assume a market has an equilibrium price of $5. If the market price is set at $9: I. Producer surplus rises for some producers because of the increased price.
II) Producer surplus decreases for some producers because fewer transactions are taking place.
III) Total surplus may rise or fall depending on the change in producer surplus.
A) II only
B) I and III only
C) I and II only
D) I, II, and III

Question

Quizplus · Accepted Answer

Option I is true because some producers will benefit from the higher price, as they can sell their products at a higher price and earn more profit.
Option II is also true because at a higher price, the quantity demanded will decrease, resulting in fewer transactions and hence lower producer surplus.
Option III is not necessarily true in this case. It depends on the extent to which producer surplus has decreased due to the decrease in transactions. If the decrease is significant, overall total surplus may fall. If the decrease is not significant, total surplus may still rise due to the increase in producer surplus for some producers.

Assume a Market Has an Equilibrium Price of $5