Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:

A) fall by $275.
B) fall by $500.
C) remain the same.
D) rise by $275.
E) rise by $500.

Question

Owusu Gyamfi Richmond · Accepted Answer

Final Answer : E, Explanation :  A price floor set above the equilibrium price increases producer surplus because producers receive a higher price for their goods. The government purchasing the surplus ensures that producers sell all their output at the floor price, leading to an increase in producer surplus by the area between the equilibrium price and the price floor over the quantity sold.

Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:

A) fall by $275.
B) fall by $500.
C) remain the same.
D) rise by $275.
E) rise by $500.

Definitions

Learning Objectives

Learning Objectives

Related questions

Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:A) fall by $275.B) fall by $500.C) remain the same.D) rise by $275.E) rise by $500.

Definitions

Learning Objectives

Learning Objectives

Related questions

Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:

A) fall by $275.
B) fall by $500.
C) remain the same.
D) rise by $275.
E) rise by $500.