Graph 7-3
-According to Graph 7-3, when the price falls from P₂ to P₁, producer surplus:
A)decreases by an amount equal to A
B)decreases by an amount equal to A + C
C)decreases by an amount equal to A + B
D)increases by an amount equal to A + B

Question

Graph 7-3 
-According to Graph 7-3, when the price falls from P₂ to P₁, producer surplus:
A)decreases by an amount equal to A 
B)decreases by an amount equal to A + C 
C)decreases by an amount equal to A + B 
D)increases by an amount equal to A + B

Quizplus · Accepted Answer

The area of producer surplus between P₂ and the supply curve is A + B. When the price falls to P₁, the new producer surplus is only equal to the area between the new price and the supply curve, which is A. Therefore, the decrease in surplus is equal to A + B.

Graph 7-3 -According to Graph 7-3, When the Price Falls from P₂