Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13.If the market price of hammers decreased from $13 to $11, total producer surplus would:
A) decrease from $9 to $5.
B) increase from $5 to $9.
C) decrease from $30 to $17.
D) remain unchanged.

Question

Quizplus · Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive. Initially, at $13, all three stores are willing to sell their hammers, generating a producer surplus of $6 for House Depot ($13 - $7), $3 for Lace Hardware ($13 - $10), and $0 for Bob's Hardware ($13 - $13), totaling $9. When the price drops to $11, only House Depot and Lace Hardware can sell their hammers, generating surpluses of $4 ($11 - $7) and $1 ($11 - $10) respectively, totaling $5. Thus, the total producer surplus decreases from $9 to $5.

Assume There Are Three Hardware Stores, Each Willing to Sell