How can expectations about future prices affect consumer surplus and willingness to pay?

• A. Expectations about future prices have no effect on consumer surplus or willingness to pay.
• B. If consumers expect prices to rise in the future, they may increase their current willingness to pay, potentially increasing current consumer surplus.
• C. If consumers expect prices to fall in the future, they will always buy more now, increasing current consumer surplus.
• D. If consumers expect prices to rise in the future, they will decrease their current willingness to pay.

Answer: (B)

Verified step by step guidance

1. Step 1: 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. It measures the benefit consumers receive from purchasing at a given price.
2. Step 2: Recognize that willingness to pay (WTP) reflects the maximum price a consumer is ready to pay for a good or service, which can be influenced by expectations about future prices.
3. Step 3: Analyze how expectations about future prices affect current behavior: if consumers expect prices to rise in the future, they may increase their current willingness to pay to buy now before prices go up, potentially increasing current consumer surplus.
4. Step 4: Conversely, if consumers expect prices to fall in the future, they may delay purchases, reducing their current willingness to pay and potentially decreasing current consumer surplus.
5. Step 5: Summarize that expectations about future prices can shift demand curves by changing willingness to pay, which in turn affects consumer surplus, so the statement that expectations have no effect is incorrect.