Multiple Choice
If the price of an apple is 0.50, what is the marginal utility per dollar spent on the fifth apple if its marginal utility is 1.5?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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You have an idea for a new product. Market research suggests that most consumers are willing to pay \$50 for it, but you plan to sell it for \$40. What does the difference between the willingness to pay and the price represent in microeconomics?
A
Consumer surplus
B
Producer surplus
C
Marginal cost
D
Deadweight loss
Verified step by step guidance1
Understand the concept of willingness to pay (WTP), which is the maximum amount a consumer is ready to pay for a good or service.
Recognize that the price is the actual amount the consumer pays to purchase the product.
Identify that the difference between the willingness to pay and the price paid represents the extra benefit or gain the consumer receives from buying the product at a lower price than their maximum willingness to pay.
Recall that in microeconomics, this extra benefit to the consumer is called consumer surplus.
Therefore, the difference between willingness to pay and price is known as consumer surplus.
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