Which of the following statements best illustrates the existence of producer surplus?

• A. A consumer buys apples at a price lower than what she was willing to pay.
• B. A farmer sells wheat at a market price of \$5 per bushel, even though he was willing to sell it for \$3 per bushel.
• C. A company sells its product at exactly the minimum price it is willing to accept.
• D. A producer is unable to sell any units because the market price is below his cost of production.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of producer surplus. Producer surplus is the difference between the amount a producer is paid for a good and the minimum amount they are willing to accept to produce the good. It represents the benefit producers receive from selling at a market price higher than their minimum acceptable price.
2. Step 2: Identify the minimum acceptable price for the producer, which is often related to the cost of production or the lowest price at which the producer is willing to sell the good.
3. Step 3: Compare the market price at which the producer sells the good to the minimum acceptable price. If the market price is higher, the producer surplus exists and is calculated as: \(\text{Producer Surplus} = \text{Market Price} - \text{Minimum Acceptable Price}\).
4. Step 4: Analyze each statement in the problem to see which one describes a situation where the market price exceeds the minimum acceptable price, indicating producer surplus.
5. Step 5: Conclude that the statement where a farmer sells wheat at a market price of \$5 per bushel, even though he was willing to sell it for \$3 per bushel, best illustrates producer surplus because the farmer gains an extra \$2 per bushel above his minimum acceptable price.