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Which of the following will cause an increase in producer surplus?

a) Decrease in demand
b) Increase in supply
c) Implementation of a price ceiling
d) Taxation on producers

User Doug Paul
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1 Answer

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Final answer:

An increase in supply can cause an increase in producer surplus, while a decrease in demand, a price ceiling, and taxation on producers would not. Producer surplus increases when producers receive higher prices than the minimum they are willing to accept.

Step-by-step explanation:

The question is which of the listed options will cause an increase in producer surplus. Producer surplus is the difference between what producers are willing to accept for a good or service versus what they actually receive. An increase in producer surplus happens when producers receive a higher price for their goods or services than the minimum they are willing to accept.

An increase in supply, if it is caused by an improvement in technology or an increase in productivity, can lead to greater producer surplus because it can lower production costs, thereby increasing the difference between the price received and the cost of production.

However, options such as decrease in demand, implementation of a price ceiling, and taxation on producers would not increase producer surplus. A decrease in demand will lower the equilibrium price, and a price ceiling will set a legal maximum price that is below the equilibrium price, both leading to decreased producer surplus. Taxation on producers increases the cost of production and reduces the surplus they receive.

User Tacet
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