Which of the following situations best illustrates consumer surplus in relation to willingness to pay?

• A. A consumer refuses to buy a product because its price is higher than their willingness to pay.
• B. A producer sets a price equal to the cost of production.
• C. A consumer buys a product for \$20 even though they were willing to pay \$30.
• D. A consumer pays exactly the amount they were willing to pay for a product.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of consumer surplus. Consumer surplus is the difference between the maximum amount a consumer is willing to pay for a good or service and the actual price they pay.
2. Step 2: Identify the willingness to pay (WTP) and the actual price paid in each situation. For example, if a consumer is willing to pay \$30 but pays \$20, the consumer surplus is \$30 - \$20.
3. Step 3: Analyze each option to see if it reflects a positive consumer surplus. If the price paid is less than the willingness to pay, consumer surplus exists.
4. Step 4: Recognize that if a consumer refuses to buy because the price is higher than their willingness to pay, there is no consumer surplus since no transaction occurs.
5. Step 5: Conclude that the situation where a consumer buys a product for \$20 even though they were willing to pay \$30 best illustrates consumer surplus, as the consumer gains a benefit equal to the difference between WTP and price.