Question

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus ______.
a. would necessarily increase even if the higher price resulted in a surplus of widgets
b. would necessarily decrease because the higher price would create a surplus of widgets
c. might increase or decrease
d. would be unaffected

Answer 1

Answer:

c. might increase or decrease

Explanation:

Equilibrium price is the price at which quantity demanded equals quantity supplied in a competitive market.  

Producer surplus is the excess of revenue realized from the sales of the equilibrium quantity at a price higher than the equilibrium price.  

The producer surplus may increase or decrease. It may increase if the quantity demanded, do not decrease. It may decrease if the quantity demanded, decreases.