Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus
A)would necessarily increase even if the higher price resulted in a surplus of widgets.
B)would necessarily decrease because the higher price would create a surplus of widgets.
C)might increase or decrease.
D)would be unaffected.

Question

Quizplus · Accepted Answer

Producer surplus might increase or decrease because the higher price could lead to a surplus of widgets, affecting the quantity sold. While the higher price could potentially increase producer surplus by allowing producers to sell at a higher price, the decrease in quantity demanded (due to the price being above the equilibrium) could offset these gains, leading to an uncertain overall effect on producer surplus.

Suppose That the Equilibrium Price in the Market for Widgets