Which of the following is true about producer surplus?
A)A producer receives a surplus as some units of the good can be produced at a cost that is higher than the market price.
B)Producer surplus is shown graphically as the area under the demand curve but above the supply curve.
C)An increase in the market price due to an increase in demand will decrease producer surplus.
D)Producer surplus is the difference between what a producer is paid for a good and the cost of producing that unit of the good.
E)A decrease in the market price of a good due to a decrease in demand will increase producer surplus.

Question

Quizplus · Accepted Answer

Producer surplus is the difference between what a producer is paid for a good and the cost of producing that unit of the good. Therefore, option D is the correct choice. Option A is incorrect because a producer does not receive a surplus if the cost of production is higher than the market price. Option B is incorrect because the area under the demand curve but above the supply curve represents consumer surplus, not producer surplus. Option C is incorrect because an increase in the market price due to an increase in demand will increase producer surplus, not decrease it. Option E is incorrect because a decrease in the market price of a good due to a decrease in demand will decrease producer surplus, not increase it.

Which of the Following Is True About Producer Surplus