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Principles of Microeconomics | 7th Edition | ISBN: 9781285165905 | Authors: N Gregory Mankiw
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Suppose the demand for French bread rises. Explain what

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QUESTION:

Suppose the demand for French bread rises. Explain what happens to producer surplus in the market for French bread. Explain what happens to producer sur-plus in the market for flour. Illustrate your answers with diagrams

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QUESTION:

Suppose the demand for French bread rises. Explain what happens to producer surplus in the market for French bread. Explain what happens to producer sur-plus in the market for flour. Illustrate your answers with diagrams

ANSWER:

Problem 3

Suppose the demand for French bread rises. Explain what happens to producer surplus in the market for French bread. Explain what happens to producer surplus in the market for flour. Illustrate your answers with diagrams.

                                                              Step by Step Solution

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Producer surplus is the extra amount that the producer earns when the price in the market is above the price at which the producer is willing to sell. The prices may rise due to several reasons such as high demand or future anticipation. Producer surplus incentivizes the producers to produce more and thus add to higher output and GDP levels.

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