Figure 7-4

-Refer to Figure 7-4.When the price falls from P₂ to P₁,what happens to producer surplus
A)It decreases by an amount equal to A.
B)It decreases by an amount equal to A + C.
C)It decreases by an amount equal to A + B.
D)It increases by an amount equal to A + B.

Question

Figure 7-4
 
-Refer to Figure 7-4.When the price falls from P₂ to P₁,what happens to producer surplus
A)It decreases by an amount equal to A. 
B)It decreases by an amount equal to A + C. 
C)It decreases by an amount equal to A + B. 
D)It increases by an amount equal to A + B.

Quizplus · Accepted Answer

When the price falls from P₂ to P₁, the producer surplus decreases by an amount equal to A + B, which is the area of the triangle formed by the original supply curve (at P₂), the new supply curve (at P₁), and the vertical line at Q. Therefore, the correct answer is C.

Figure 7-4 -Refer to Figure 7-4.When the Price Falls from P₂ to Falls