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Homework answers / question archive / Producer surplus and price changes The following graph shows the supply curve for a group of students looking to sell used smartphones
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.
Valerie Shen ---- PRICE (Dollars per used smartphone) Poornima Manuel Kate Hubert 0 1 2 3 56 QUANTITY (Used smartphones)
Region A (the purple shaded area) represents the total producer surplus when the market price is $150, while Region B (the grey shaded area) represents the change in total producer surplus when the market price changes from $150 to $175
In the following table, indicate which statements are true or false based on the information provided on the previous graph.
Statement True False
Assuming each student receives a positive surplus, Manuel will always receive less producer surplus than Poornima.
Producer surplus is smaller when the price is $175 than when it is $150.
In order for Poornima to earn a producer surplus of exactly $25 from selling a used smartphone, the market price needs to be $250.
Answer:
Producer surplus (PS) = Market price - Minimum acceptable price
(1)
Region A is total PS when price is $150 and region B is the change in total producer surplus when price changes from $150 to $175.
(2)
Manuel will receive less PS than Poornima - False (Since Manuel's minimum acceptable price is lower than that of Poornima)
PS is smaller when price is $165 - False (the higher the market price, the higher the PS)
(3)
Price = $150 + $25 = $175 [Since price = PS + Minimum acceptable price]
