Question

Price per pound (S) Supply A P2 B C P D Po H G Demand Quantity of granola (ibs) O2 Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2in order to raise the price to P2 Refer to Figure 4-3. What area represents producer surplus at P2? A+ B+ D B+ D B+ D+ G B+ C+ D+ E

Answer 1

producer surplus can be define by the difference between how much they can get by selling the goods at a given market price and how much a person would be willing to accept for a given quantity of goods.

As shown in Figure 4-3 in the question, producer increases the price would result result in decrease in quantity sold by producer, and surplus value for both consumer and producer will change, consumer surplus after price change will be area "A", where as producer surplus will be area "B + D".