Which of the following best explains why business organizations purchase products in the context of consumer surplus and willingness to pay?

• A. To obtain goods and services for which their willingness to pay exceeds the market price, thereby gaining consumer surplus
• B. To minimize the total surplus in the market
• C. To ensure that the market price is always equal to their willingness to pay
• D. To maximize the producer surplus of other firms

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of willingness to pay (WTP), which is the maximum amount a buyer is ready to pay for a good or service based on the value they expect to receive.
2. Step 2: Define consumer surplus as the difference between the willingness to pay and the actual market price paid. Mathematically, consumer surplus = WTP - Price, when WTP > Price.
3. Step 3: Recognize that businesses, like consumers, aim to purchase goods and services where their willingness to pay exceeds the market price, so they gain positive consumer surplus.
4. Step 4: Analyze why minimizing total surplus or ensuring market price equals willingness to pay are not typical objectives of buyers, as these do not maximize their net benefit.
5. Step 5: Conclude that the best explanation is that businesses purchase products to obtain goods and services for which their willingness to pay exceeds the market price, thereby gaining consumer surplus.