Question

Suppose the demand for peaches decreases. What will happen to producer surplus in the market for peaches?


It increases.


It decreases.


It remains unchanged.


It may increase, decrease, or remain unchanged.

Answer 1

When the demand for peaches decreases, the market equilibrium price for peaches is likely to fall. As the price decreases, the revenue that producers receive for each peach sold also decreases. This typically leads to a reduction in the producer surplus, which is the difference between what producers are willing to accept for a good versus what they actually receive.

Therefore, the correct answer is:

**It decreases.**