Which of the following best describes how consumer surplus and willingness to pay can be used to calculate sales potential in a market?

• A. By summing the differences between consumers' willingness to pay and the market price for all units sold
• B. By multiplying the market price by the total quantity supplied
• C. By dividing total consumer surplus by the number of consumers
• D. By subtracting producer surplus from total revenue

Answer: (A)

Verified step by step guidance

1. Understand the concept of willingness to pay (WTP), which is the maximum amount a consumer is willing to pay for a good or service.
2. Recognize that consumer surplus is the difference between what consumers are willing to pay and what they actually pay (the market price). Mathematically, for each unit, consumer surplus = WTP - market price.
3. To calculate sales potential, consider all consumers and all units sold. This involves summing the individual consumer surpluses across all units and consumers.
4. Express this summation as the total consumer surplus, which represents the aggregate benefit consumers receive from purchasing at the market price.
5. Therefore, sales potential can be measured by summing the differences between consumers' willingness to pay and the market price for all units sold, reflecting the total consumer surplus in the market.