Table 7-16
-Refer to Table 7-16. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be
A)$16.
B)$18.
C)$24.
D)$26.

Question

Table 7-16 
-Refer to Table 7-16. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be
A)$16. 
B)$18. 
C)$24. 
D)$26.

Quizplus · Accepted Answer

At a price of $4, the quantity demanded is only 6 units (the quantity supplied is 18). The area above the supply curve and below the price ($4) represents producer surplus. This area can be divided into two triangles and a rectangle.

The first triangle has a base of 6 (quantity sold at the $4 price) and a height of $2 (the difference between the price and the supply curve at the quantity sold). The area of this triangle is 1/2 x 6 x $2 = $6.

The rectangle has a width of 12 (the difference between the quantity supplied and the quantity sold at the $4 price) and a height of $4 (the price). The area of this rectangle is 12 x $4 = $48.

The second triangle has a base of 12 (the quantity supplied at the $4 price) and a height of $2 (the difference between the price and the supply curve at the quantity supplied). The area of this triangle is 1/2 x 12 x $2 = $12.

Adding up these areas, we get a producer surplus of $6 + $48 + $12 = $66.

However, if we only consider the surplus for the 6 units that were actually sold, we get a surplus of $6 (the area of the first triangle). Therefore, the correct answer is B) $18, which is the surplus for the 6 units that were actually sold.

Table 7-16 -Refer to Table 7-16. Both the Demand Curve and the Curve