Question

When demand increases so that market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.

Answer 1

Answer: 1) PRODUCER SURPLUS RECIEVED BY EXISTING SELLERS INCREASES

Step-by-step explanation:

Producer Surplus is the difference between - actual price recieved by seller per unit of product and the minimum price inducing the seller to suppy that product .

Graphically , It is the area above upward sloping supply curve and below the actual price level .

When demand increases - downward sloping demand curve shifts rightwards . It creates excess demand & creates competition among buyers which increases price & contracts new demand , expands supply .

The new equilibrium is created at higher equilibrium price & quantity .

This increases the producer surplus - by rising the price & hence distance between price , supply curve (same unchanged)