Which of the following activities is commonly used by firms to persuade consumers that they need a product, thereby potentially increasing consumer willingness to pay?

• A. Taxation
• B. Price discrimination
• C. Subsidizing production
• D. Advertising

Answer: (D)

Verified step by step guidance

1. Understand the concept of consumer willingness to pay, which refers to the maximum amount a consumer is ready to spend on a product or service.
2. Recognize that firms use various strategies to influence consumer behavior and increase demand for their products.
3. Identify that advertising is a common activity used by firms to inform, persuade, and remind consumers about their products, often creating or enhancing perceived needs.
4. Contrast advertising with other options: taxation is a government policy tool, price discrimination involves charging different prices to different consumers, and subsidizing production lowers costs but does not directly persuade consumers.
5. Conclude that advertising is the activity that directly aims to increase consumer willingness to pay by shaping preferences and perceived necessity.