Question

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples A. increases, and producer surplus increases. B. decreases, and producer surplus decreases. C. increases, and producer surplus decreases. D. decreases, and producer surplus increases.

Answer 1

Answer:

The correct answer is option A.

Explanation:

When the surgeon general announces that eating apples is good for teeth, it would increase the demand for apples. The demand curve will shift rightwards. This will further lead to increase in price level. The producer surplus will also increase.

This is shown in the graph below:

When there is an increase in the demand, the demand curve moves to D' leading to an increase in the price level. It is further accompanied by an increase in the producer surplus.