Figure 7-6

-Refer to Figure 7-6.When the price falls from P₂ to P₁,which of the following would not be true?
A)The sellers who still sell the good are worse off because they now receive less.
B)Some sellers leave the market because they are not willing to sell the good at the lower price.
C)The total cost of what is now sold by sellers is actually higher than it was before the decrease in the price.
D)Producer surplus would fall by area A + B.

Question

Figure 7-6
 
-Refer to Figure 7-6.When the price falls from P₂ to P₁,which of the following would not be true?
A)The sellers who still sell the good are worse off because they now receive less. 
B)Some sellers leave the market because they are not willing to sell the good at the lower price. 
C)The total cost of what is now sold by sellers is actually higher than it was before the decrease in the price. 
D)Producer surplus would fall by area A + B.

Quizplus · Accepted Answer

When the price falls from P₂ to P₁, the quantity demanded will increase. This means some new sellers may enter the market, but generally, existing sellers will supply more. Therefore, the total cost of what is sold will decrease. Choice A is true because sellers who still sell the good at the lower price will receive less revenue, and choice B is true because some sellers may leave the market if they cannot earn a profit at the lower price. Choice D is also true because producer surplus falls by the area between the supply curve and the new price (area A) plus the reduction in producer surplus resulting from existing sellers cutting their prices (area B). However, choice C is not true as the total cost of what is sold by sellers would be lower, not higher, as the price falls.

Figure 7-6 -Refer to Figure 7-6.When the Price Falls from P₂ to Falls