Consumer expectations are a determinant of which of the following?

• A. Marginal cost
• B. Market demand
• C. Consumer surplus
• D. Producer surplus

Answer: (B)

Verified step by step guidance

1. Understand the concept of consumer expectations: These refer to what consumers anticipate about future prices, income, or product availability, which can influence their current purchasing decisions.
2. Recall the determinants of market demand: Market demand is influenced by factors such as consumer income, tastes and preferences, prices of related goods, number of buyers, and importantly, consumer expectations.
3. Analyze how consumer expectations affect market demand: If consumers expect prices to rise in the future, they may increase current demand, shifting the demand curve to the right. Conversely, if they expect prices to fall, current demand may decrease.
4. Recognize that marginal cost is related to production costs and is determined by the producer, not consumer expectations.
5. Conclude that consumer expectations directly influence market demand rather than consumer surplus or producer surplus, which are outcomes derived from the interaction of supply and demand.