What is producer surplus and when might it change?

Firstly, let’s consider the concept of producer surplus. This can be defined as the difference between the price producers are willing to supply their goods/ services at and the market price (the price they receive). It can be demonstrated on a diagram as the triangular area above the supply curve and below the market price.  Let’s now consider when producer surplus might change. Ceteris paribus, a rise in the market price will increase producer surplus as producers have an incentive to increase supply. The difference between the price producers are willing to supply at and the price they receive, increases.  For example, the market price may rise when demand increases. This is shown by a shift outward in the demand curve which increases the triangular area of producer surplus (show on graph). Using the same intuition, a fall in the market price will have the opposite effect and reduce producer surplus.