Which of the following is an important indicator of a nation's increasing purchasing power?

• A. An increase in consumer surplus
• B. A decrease in willingness to pay
• C. A rise in equilibrium price without a change in quantity
• D. A reduction in the number of buyers in the market

Answer: (A)

Verified step by step guidance

1. Understand the concept of purchasing power: It refers to the ability of consumers to buy goods and services with their income. An increase in purchasing power means consumers can afford more or better goods and services.
2. Recall the definition of consumer surplus: Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. It measures the net benefit to consumers from participating in the market.
3. Analyze how an increase in consumer surplus relates to purchasing power: If consumer surplus increases, it means consumers are getting more value or benefit from their purchases, which implies their purchasing power has increased.
4. Evaluate the other options: A decrease in willingness to pay suggests consumers value the good less, a rise in equilibrium price without a change in quantity could indicate higher costs rather than increased purchasing power, and a reduction in the number of buyers usually signals a shrinking market, not increased purchasing power.
5. Conclude that an increase in consumer surplus is the best indicator of a nation's increasing purchasing power because it directly reflects consumers gaining more benefit from their spending.