Question

As the market price of a service increases, more potential sellers will decide to perform that service because:

Multiple Choice

• more potential sellers will find that the market price exceeds their reservation price.

• higher prices lead to lower opportunity costs.

• higher prices result in higher revenue.

• it’s more prestigious to produce high-priced services.

Answer 1

The reservation price for the seller is the minimum acceptable price for the goods and services.

The producer surplus is the difference between the price and the reservation price.

So when the market price of a service increases, more potential sellers will decide to perform that service more potential sellers will find that the market price exceeds their reservation price. This leads to more producer surplus for the sellers.

Hence option first is the correct answer.