In the context of consumer surplus and willingness to pay, which statement best describes the relationship between a consumer's need recognition and the purchase decision?

• A. The consumer decision process begins with need recognition, and consumer surplus is realized if the purchase price is less than the consumer's willingness to pay.
• B. Need recognition only affects the quantity demanded, not the consumer's willingness to pay.
• C. A consumer's willingness to pay is determined by the difference between their need recognition and the market price.
• D. Consumer surplus is maximized when the purchase price equals the consumer's willingness to pay.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of need recognition in consumer behavior. Need recognition is the initial stage in the consumer decision process where the consumer identifies a gap between their current state and a desired state, prompting the search for a product or service to satisfy that need.
2. Step 2: Define willingness to pay (WTP). WTP is the maximum amount a consumer is ready to pay for a good or service, reflecting the value or utility they expect to gain from the purchase.
3. Step 3: Explain consumer surplus. Consumer surplus is the difference between the consumer's willingness to pay and the actual purchase price. It represents the net benefit or extra utility the consumer receives from buying the product at a price lower than their maximum WTP.
4. Step 4: Connect need recognition to the purchase decision and consumer surplus. The consumer decision process starts with need recognition, which motivates the consumer to consider purchasing. If the market price is less than the consumer's willingness to pay, the consumer gains a surplus, making the purchase beneficial.
5. Step 5: Clarify why the other statements are incorrect. Need recognition influences the decision to buy but does not directly determine WTP; WTP is not calculated as a difference between need recognition and price; and consumer surplus is maximized when the purchase price is less than WTP, not equal to it.