Multiple Choice
Which concept emphasizes how goods or services will satisfy consumers' wants and needs?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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A new product often has a high price when it is launched because of a:
A
decrease in consumer surplus
B
low marginal cost of production
C
increase in supply
D
high willingness to pay among early adopters
Verified step by step guidance1
Understand the concept of consumer surplus, which is the difference between what consumers are willing to pay for a good and what they actually pay.
Recognize that a high price at product launch is often due to early adopters having a high willingness to pay, meaning they value the product more and are willing to pay a premium.
Note that a low marginal cost of production typically leads to lower prices, not higher, so this is unlikely to explain a high launch price.
Understand that an increase in supply usually causes prices to fall, so this does not explain a high initial price either.
Conclude that the high price at launch is best explained by the high willingness to pay among early adopters, which reduces consumer surplus for these consumers but allows the firm to charge a premium.
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