Question

Suppose that last year the equilibrium price and the quantity of good X were $10 and 5 million pounds, respectively. Because of strong demand this year, the equilibrium price and the quantity of good X are $12 and 7 million pounds, respectively. Assuming that the supply curve of good X is linear, producer surplus:

Answer 1

Answer:

Explanation:

Last year the equilibrium price and the quantity of good X were $10 and 5 million pounds, respectively.

The producer surplus is the difference between the minimum price that a producer is willing to accept and the price it actually gets. It can be found by calculating the area between the supply curve and the market price.

The producer surplus

= $\frac{1}{2}\ \times\ base\ \times\ height$

= $\frac{1}{2}\ \times\ quantity\ \times\ price$

= $\frac{1}{2}\ \times\ 5\ \times\ 10$

= $25

Because of strong demand this year, the equilibrium price and the quantity of good X are $12 and 7 million pounds, respectively.

The producer surplus

= $\frac{1}{2}\ \times\ base\ \times\ height$

= $\frac{1}{2}\ \times\ quantity\ \times\ price$

= $\frac{1}{2}\ \times\ 7\ \times\ 12$

= $42