When a similar group of consumers responds to the same marketing mix, which concept best explains the difference between the price they actually pay and the maximum price they are willing to pay?

• A. Consumer surplus
• B. Producer surplus
• C. Marginal cost
• D. Price elasticity of demand

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of 'maximum price consumers are willing to pay.' This is the highest price at which a consumer values a good or service, reflecting their personal valuation or utility from the product.
2. Step 2: Recognize the 'price they actually pay' as the market price or the transaction price consumers pay to purchase the good or service.
3. Step 3: Define 'consumer surplus' as the difference between the maximum price a consumer is willing to pay and the actual price they pay. Mathematically, consumer surplus for an individual can be expressed as \(\text{Consumer Surplus} = \text{Maximum Willingness to Pay} - \text{Actual Price Paid}\).
4. Step 4: Differentiate consumer surplus from other concepts: Producer surplus relates to sellers' gains, marginal cost is the cost of producing one more unit, and price elasticity of demand measures responsiveness of quantity demanded to price changes.
5. Step 5: Conclude that the concept best explaining the difference between the price consumers pay and the maximum price they are willing to pay is 'consumer surplus.'