6. Producer surplus and price changes The follaw ing graph shows the supply curv

Question

6. Producer surplus and price changes The follaw ing graph shows the supply curve fora group of students laking to sell used smartphones. Esch student has only one used smartphone to sell. Esch rectangular segment under the supply curv·represents the "cost," or minimum scceptable price, for one student. Assume that smyone who has a cost just equal to the market price is willing to sell his or her used smartphone. 300 Tereea Sam Neha 52 uanita Gllber0 QUANTITY (used smartpihones) , while Region B (the grey shaded res) when the market price Statement True False ssuming esch student receivs positive surplus, Gilberto willways receive less producer surplus than Juanits.

Explanation / Answer

1. Region A represents the total producer surplus when market price is $125, while Region B represents the additional producer surplus earned by Gilberto, Juanita, Lorenzo and Neha when market price is $175.

2. TRUE: Producer surplus will be larger when price is $175 than $125 since higher price implies a higher producer surplus.

3. FALSE: Since Giberto's asking price is lower than Juanita, Giberto will always receive higher producer surplus than Juanita

4. 4. Sam's asking price (or, seller's reservation price) is $200. To earn a producer surplus of $50 from selling a used smartphone, the market price must $250. That is, $50 above his asking price of $200.

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