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.

Question

Quizplus · Accepted Answer

When demand increases, leading to a higher market price, existing sellers benefit from higher margins (difference between the price they receive and their cost), thus increasing their producer surplus. Additionally, the higher price attracts new sellers into the market, further increasing the overall producer surplus.

When Demand Increases So That Market Price Increases, Producer Surplus