Asked by Jelena Kosir on Jul 20, 2024
Verified
Refer to Figure 7-14. Suppose there is initially a price floor set at $10 in this market. If the government removed the price floor, by how much would total producer surplus change, assuming the producers with the lowest cost were the ones supplying the market when the price floor was in place?
Producer Surplus
The difference between what producers are willing to accept for a good or service versus what they actually receive, measured above the supply curve to the equilibrium price.
Price Floor
A government-imposed minimum price charged for a good or service, intended to prevent prices from falling below a certain level to protect producers or market sectors.
- Grasp the fundamentals of producer surplus and how its determination is made upon reaching market equilibrium.
- Detail the ramifications of government measures, like price ceilings and floors, on the welfare surplus of consumers and producers.
Verified Answer
CD
Christopher DominguezJul 25, 2024
Final Answer :
Total producer surplus with the price floor is $2,100, and total producer surplus after the price floor is removed is $1,600. Therefore, total producer surplus falls by $500 when the price floor is removed.
Learning Objectives
- Grasp the fundamentals of producer surplus and how its determination is made upon reaching market equilibrium.
- Detail the ramifications of government measures, like price ceilings and floors, on the welfare surplus of consumers and producers.