posted by Martin on .
I've got a question about producer surplus.
I know that the magnitude of producer surplus would depend on the elasticity of supply, but i don't know why...
Please explain. Thank you!
Elasticity of supply means how much more suppliers will produce if the price goes up, and how much they will cut back production if price or demand godown.
If producers are not elastic in their response to falling price, surpluses result.