Question

. John has been working as a tutor for $300 a
semester. When the university raises the price it pays
tutors to $400, Jasmine enters the market and begins
tutoring as well. How much does producer surplus
rise as a result of this price increase?

Answer 1

Answer:

$300 to $400

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Answer 2

Given: John works as a tutor for $300. The increased payment by the university is $400.

To Find: The increase in producer surplus

Solution: Producer Surplus = (Market Price - Minimum Price to Sell) × Quantity Sold

Now John's current producer surplus is:                    [putting the given vaules]

PS= (400-300) × 1                        [Considering John teaches only one student]

PS= $100

Earlier before Jasmine's entry the market price and the minimum price to sell was the same, and hence at Equilibrium($300).

[putting the given vaules]

PS= (300-300) × 1

PS= 0

Hence the absolute increase in the surplus-value of John is $100