When a company opts to boost its sales of branded footwear by lowering prices, what is the most likely effect on consumer surplus?

• A. Consumer surplus remains unchanged because willingness to pay does not depend on price.
• B. Consumer surplus is eliminated because all consumers pay exactly their willingness to pay.
• C. Consumer surplus decreases because the lower price reduces the value consumers place on the product.
• D. Consumer surplus increases because more consumers can purchase the footwear at a price below their willingness to pay.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of consumer surplus. Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. It measures the net benefit to consumers from purchasing a product at a given price.
2. Step 2: Recognize that when the company lowers the price of branded footwear, the price paid by consumers decreases. This means that consumers who were already buying the product pay less, increasing their individual consumer surplus.
3. Step 3: Consider that a lower price also attracts new consumers who were previously unwilling to buy at the higher price. These new consumers gain consumer surplus because they pay less than or equal to their willingness to pay.
4. Step 4: Combine these effects to see that the total consumer surplus increases. More consumers purchase the product, and each pays a price below their maximum willingness to pay, expanding the area representing consumer surplus on a demand curve graph.
5. Step 5: Conclude that lowering prices leads to an increase in consumer surplus, as it benefits both existing and new consumers by allowing more purchases at prices below their willingness to pay.