Which of the following events would increase producer surplus?

• A. A decrease in consumer demand for the good
• B. An increase in the market price of the good
• C. The imposition of a price ceiling below the equilibrium price
• D. A decrease in the cost of production for all producers

Answer: (B)

Verified step by step guidance

1. Understand the definition of producer surplus: it is the difference between what producers are willing to accept for a good and the actual price they receive. Producer surplus increases when producers receive a higher price or when their costs decrease.
2. Analyze the effect of a decrease in consumer demand: this typically lowers the market price, reducing producer surplus because producers receive less for their goods.
3. Consider an increase in the market price of the good: a higher price means producers receive more revenue per unit sold, which increases producer surplus.
4. Examine the imposition of a price ceiling below the equilibrium price: this restricts the price producers can charge, usually lowering it and thus decreasing producer surplus.
5. Look at a decrease in the cost of production for all producers: lower costs mean producers can supply at a lower price while maintaining the same revenue, which increases producer surplus.