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. (? 480 400 DO Neha 320 0 Lorenzo PRICE(Dollars per used smartphone) 240 B Juanita 160 А о Gilberto O Dina 80 0 Charles 0 0 1 4 5 2 QUANTITY (Used smartphones) while Region B (the grey shaded area) Region A (the purple shaded area) represents the total producer surplus when the market price is s 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. Statement True False Assuming each student receives a positive surplus, Charles will always receive more producer surplus than Dina. O Producer surplus is smaller when the price is $280 than when it is $200. In order for Lorenzo to earn a producer surplus of exactly $120 from selling a used smartphone, the market price needs to be $

Answer 1

Producer surplus (PS) = Market price - Minimum price acceptable to producer

A producer will sell a product only if Market price is higher than her Minimum acceptable price.

(I)

Region A is total PS when price is $200. Region B is the change (increase) in PS when price increases to $280 (by $80)].

(II)

Charles will receive more PS than Dina - True (since Charles has a lower minimum acceptable price than Dina)

PS is smaller when price is $280 - False (the higher the market price, the higherthe PS)