Question

Think about producer surplus. Get an example in your mind of something you might want to sell and how much is the minimum you would sell it for. Now imagine the price goes DOWN by $10. What happens to your producer surplus?

Answer 1

A decrease in market price by $10 reduces the producer surplus, which is the difference between the actual selling price and the minimum price the producer would accept for a good or service.

Step-by-step explanation:

When considering producer surplus, which is the extra benefit producers receive from selling a good or service, imagine you have an item you wish to sell and the minimum price you would accept for it. If the market price goes down by $10,

your producer surplus decreases because it is calculated as the actual price received minus the minimum price you were willing to accept. With a lower market price, you are either receiving less than before for the same item, or you may not make the sale at all if the new price falls below your minimum acceptable price.

Using the given steps as a reference, when barriers to trade are introduced, and the price becomes PNoTrade – a higher price due to lack of imports – the quantity supplied by domestic producers increases and so does their producer surplus.

Conversely, if the price was to decrease by $10, the exact opposite effect would occur: the quantity supplied would likely decrease, and the producer surplus would shrink accordingly, seen by a smaller area between the actual price and the minimum acceptable price in the supply and demand diagram.