6. Producer surplus and price changes The following graph shows the supply curve
ID: 1166141 • Letter: 6
Question
6. Producer surplus and price changes The following graph shows the supply curve for a group of students looking to sell used smartphones. Each student has only one used smartphone to sell. Each rectangular segment under the supply curve represents the "cost," or minimum acceptable price, for one student. Assume that anyone who has a cost just equal to the market price is willing to sell his or her used smartphone. 120 100 Rosa 80 60 ? Latasha Frances 20 QUANTITY (Used smartphones) Region A (the purple shaded area) represents the total producer surplus when the market price is S , while Region B (the grey shaded area) represents when the market price In the following table, indicate which statements are true or false based on the information provided on the previous graph. True False Statement Producer surplus is smaller when the price is $70 than when it is $50. Assuming each student receives a positive surplus, Jake will always receive less producer surplus than Latasha. O In order for Nick to earn a producer surplus of exactly $20 from selling a used smartphone, the market price needs to be SExplanation / Answer
Producers surplus is the excess over at what price the producer wants to sell a good to the market price.
Region A represents the total PS when the market price is 50, corresponding to the price axis.
Region B, represents Latasha's Producers surplus, when the market price is 70.
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Region A represents the PS when the market price is 50 and REgion(A + B) represents the PS when the market price is 70. Clearly the area of the PS when the market price is 70 is bigger than the one when the market price is 50. So the first statement is False.
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If the market price is below 50, Latasha receives no PS since the price at which she is willing to sell the product is also 50. So, clearly we can see that Jake receives more PS than Latasha in this case and as the market price keeps on increasing Jake always receives a higher PS. So the second statement is also False.
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Nick is willing to sell 5 quantities, while his willingness to sell is at 80. So, if the market price is 84, Nick receives a PS exactly equals to (5*4) = 20. So, the market price needs to be 84.
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