Which of the following is a good that a consumer might choose not to buy if its price increases, illustrating the concept of willingness to pay and consumer surplus?

• A. Basic food staples
• B. A luxury car
• C. Prescription medication for a chronic illness
• D. Tap water

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of willingness to pay, which reflects the maximum amount a consumer is ready to pay for a good or service based on the utility or satisfaction it provides.
2. Step 2: Recognize that consumer surplus is the difference between what a consumer is willing to pay and the actual price paid; when price increases, consumer surplus typically decreases.
3. Step 3: Identify goods that are necessities or have inelastic demand (like basic food staples, prescription medication, and tap water), where consumers are less likely to reduce consumption despite price increases.
4. Step 4: Identify goods that are luxury or non-essential items (like a luxury car), where consumers have more flexibility to forgo purchase if the price rises, illustrating a decrease in willingness to pay.
5. Step 5: Conclude that a luxury car is the good that a consumer might choose not to buy if its price increases, effectively demonstrating the concepts of willingness to pay and consumer surplus.