Multiple Choice
If you drive a fancy car a lot of miles each month, your insurance premiums will likely be:
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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In a free market system, the concept of consumer sovereignty means that:
A
consumers determine what goods and services are produced through their purchasing choices
B
the government decides which products are available in the market
C
producers set prices without regard to consumer preferences
D
firms maximize profits by ignoring consumer demand
Verified step by step guidance1
Understand the concept of consumer sovereignty: it refers to the power of consumers to decide what goods and services are produced in the market by their purchasing decisions.
Recognize that in a free market system, producers respond to consumer preferences because their profits depend on selling products that consumers want.
Eliminate options that contradict consumer sovereignty, such as government deciding products, producers ignoring consumer preferences, or firms maximizing profits without regard to demand.
Focus on the idea that consumer choices guide production, meaning that the demand side of the market influences what is supplied.
Conclude that consumer sovereignty means consumers determine what goods and services are produced through their purchasing choices.
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