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 increased from $8 to $14, total producer surplus would increase from:
A) $8 to $14.
B) $1 to $12.
C) $14 to $8.
D) $7 to $30.

Question

Quizplus · Accepted Answer

Before the increase in market price, each hardware store is willing to sell hammers for a price above $8. This means that they are already making producer surplus.

- House Depot: Producer surplus = $8-$7 = $1
- Lace Hardware: Producer surplus = $8-$10 = -$2 (no producer surplus)
- Bob's Hardware: Producer surplus = $8-$13 = -$5 (no producer surplus)

If the market price increased to $14, each hardware store would be able to sell their hammer for above their minimum price, resulting in an increase in producer surplus.

- House Depot: Producer surplus = $14-$7 = $7 (increase of $6)
- Lace Hardware: Producer surplus = $14-$10 = $4 (increase of $6)
- Bob's Hardware: Producer surplus = $14-$13 = $1 (increase of $6)

Therefore, the total increase in producer surplus would be $18 (6+6+6).

Assume There Are Three Hardware Stores, Each Willing to Sell