Multiple Choice
Which statement best distinguishes between consumer needs and wants?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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In the context of consumer surplus and willingness to pay, which term best describes the maximum amount a consumer is willing to pay for a product?
A
Willingness to pay
B
Producer surplus
C
Consumer surplus
D
Market price
Verified step by step guidance1
Understand the concept of willingness to pay (WTP): it represents the maximum amount a consumer is ready to pay for a good or service, reflecting the value they place on it.
Recognize that consumer surplus is the difference between the willingness to pay and the actual market price paid by the consumer.
Identify that producer surplus relates to the difference between the market price and the minimum price producers are willing to accept.
Note that market price is the actual price at which the good is sold, not the maximum a consumer is willing to pay.
Conclude that the term describing the maximum amount a consumer is willing to pay for a product is 'Willingness to pay'.
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