Which of the following will cause an increase in producer surplus?
A)the imposition of a binding price ceiling in the market
B)buyers expect the price of the good to be lower next month
C)the price of a substitute increases
D)income increases and buyers consider the good to be inferior

Question

Quizplus · Accepted Answer

An increase in the price of a substitute will cause an increase in the demand for the good in question, leading to an increase in the quantity sold and thus an increase in producer surplus. Option A is incorrect because a binding price ceiling would limit how high the price can go, resulting in lower producer surplus. Option B is also incorrect; if buyers expect the price to be lower next month, they will delay their purchases, resulting in lower demand and thus lower producer surplus. Option D is incorrect because if buyers consider the good to be inferior, they will decrease their demand, resulting in a decrease in producer surplus.

Which of the Following Will Cause an Increase in Producer